Italy government unveiled after two-month deadlock

Rome: Italian centre-left politician Enrico Letta said on Saturday he had won support of other parties to form a coalition government that will include one of former prime minister Silvio Berlusconi's closest allies as deputy prime minister.

Letta met President Giorgio Napolitano after talks with Berlusconi and leaders of his centre-right People of Freedom (PDL) party to confirm that he had reached an accord which would clear the way for a government to be formed.

"I hope that this government can get to work quickly in the spirit of fervent cooperation and without any prejudice or conflict," Napolitano told reporters.

PDL secretary Angelino Alfano will be deputy prime minister and interior minister, giving the centre-right a powerful voice at the heart of the new government.

Bank of Italy director general Fabrizio Saccomanni will take the key economy ministry portfolio and former European Commissioner Emma Bonino will be foreign minister.

The government, which Letta said would contain a record number of women ministers, will be sworn in at 0930 GMT on Sunday and Letta is expected to go before parliament to seek a vote of confidence on Monday.

Letta, 46, the deputy leader of the centre-left Democratic Party (PD), spent more than two hours on Saturday in talks with Berlusconi, who will not be a member of the government but is likely to play an important backstage role.

Letta is on the right of the PD and the nephew of one of Berlusconi's closest aides.

Agreement had been held up by wrangling over ministerial posts and policy differences, notably over Berlusconi's demand to scrap the unpopular IMU housing tax, a move that would blow an 8 billion euro hole in this year's budget plans.

Italy, the euro zone's third largest economy, has been without an effective government for months, with the long post-election deadlock holding up any concerted effort to end a recession set to become the longest since World War Two.

Letta received some encouragement late on Friday when the ratings agency Moody's kept its rating on Italian government debt unchanged at Baa2 because low interest rates were making it possible to buy time to implement much-needed reforms.

Bond yields have fallen to their lowest in more than two years as investors hope for enough stability to help Italy revive its economy and gradually tackle its large public debt.

However, Moody's also said medium-term growth prospects were weak and forecast the economy would shrink by 1.8 percent this year, compounding more than two decades of stagnation.

Letta has said his priorities will be boosting the economy and tackling unemployment, restoring confidence in Italy's discredited political institutions and trying to turn Europe away from austerity to focus more on growth and investment.

PRIORITIES

On paper, the priorities laid out by Letta fit in well with proposals from Berlusconi's camp, which has attacked the austerity policies of outgoing prime minister Mario Monti.

Berlusconi, in the middle of legal battles over a tax fraud conviction and charges of paying for sex with a minor, had pressed for the cabinet to include close political allies and had opposed the inclusion of technocrats.

In the event, however, several of the big ministries were led by non-political figures.

As well as Saccomanni at the economy ministry, Anna Maria Cancellieri, the former police official who served as interior minister under Monti took the justice portfolio, while the labour ministry went to Enrico Giovannini, head of statistics agency ISTAT.

Monti's centrist movement Civic Choice obtained a token presence in the government, with Mario Mauro taking the defence ministry.

Letta has had to fight strong resistance in parts of the Democratic Party to an accord with Berlusconi, its sworn enemy for almost 20 years.

The centre-left, which threw away a 10-point lead before the elections poll and now trails Berlusconi by more than five points, according to a poll by the SWG institute on Friday.

The other main force in parliament, Beppe Grillo's anti-establishment 5-Star Movement, has ruled out taking part in a government made up of the two main parties. He called the right-left coalition "an orgy worthy of the best of bunga bunga", a reference to Berlusconi's parties at his private villas.