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. Last Updated: 07/27/2016

Prodi Makes Deal to Secure Budget

ROME -- Italian Prime Minister Romano Prodi clinched a deal with the communist party Tuesday to secure a 1998 budget, ending a political crisis that came close to derailing plans to join a European single currency.

President Oscar Luigi Scalfaro immediately revoked the government resignation Prodi tendered last week, resuscitating Prodi's center-left administration.

"In this crisis, there were no winners or losers. Italy and good sense won," Prodi said at a news conference.

Prodi, speaking after a meeting with Scalfaro, said he was unsure if he needed to ask for a vote of confidence from the parliament. But with the communists' return to the government fold, Prodi would be certain of winning a majority in the lower house Chamber of Deputies.

The agreement, reached on the last day of Scalfaro's political consultations on the crisis, swept away fears of early elections and prolonged political uncertainty.

Prodi had resigned last Thursday after the Communist Refoundation party, which secured his government's majority in the lower house of parliament, refused to back the deficit-cutting budget.

Communist leader Fausto Bertinotti, disclosing details of the new accord after a half-hour meeting with Prodi on Tuesday, said the deal would last throughout 1998 and possibly longer.

"The agreement has been signed, which means the crisis is over," Bertinotti said.

The accord included a cut in the workweek to 35 hours by the year 2001, protection of pension rights for blue-collar workers and the easing of spending cuts in the 1998 budget by 500 billion lire ($290 million), he said. The shortfall in the budget would be made up by combatting tax evasion, he added.

In an immediate statement, Prodi's government said the communists for their part had agreed to join efforts to ensure Italy's membership of European economic and monetary union.

Bertinotti said the government would introduce a draft law on a 35-hour workweek to parliament in January, a concession that is likely to disturb industrial leaders.

But the government swiftly made clear that a reduction in the workweek would apply only to firms with more than 15 employees.

Financial markets looked set to soar on news of the deal. The all-share Mibtel Index powered as high as 16,068 earlier Tuesday, brushing an all-time high of 16,091.

The December government bond future rose as high as 112.70 on London's Liffe, and the spread between Italian and German 10-year government bonds narrowed to 51 basis points.

In Brussels, European Commission President Jacques Santer gave his own vote of confidence, welcoming Italy's speedy efforts to solve the crisis and stick to budgetary discipline.

Italian Treasury Minister Carlo Azeglio Ciampi said European Union forecasts confirmed that the economy was undergoing a "robust recovery." "The forecasts published today by the European Commission fully confirm the successful recovery of Italian public accounts," Ciampi said in a statement, adding that they showed Italy's overhaul of state accounts could be sustained.

In its autumn forecasts, the EU revised down its 1997 deficit forecast for Italy to 3.0 percent of gross domestic product from 3.2 percent, noting that the deficit had been 6.8 percent in 1996.