Italy’s Letta presses on after coalition tensions

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ROME, Italy- Italian Prime Minister Enrico Letta said on Thursday he was confident that his fractious left-right coalition was on the right path after a meeting aimed at easing tensions over its halting progress on economic reforms.

“There’s a good relaunch of the government and of the government program. I’m optimistic and we are on the right path,” Letta said after a clear-the-air meeting called when the centrist Civic Choice movement threatened to withdraw support if economic reforms were not stepped up.

According to an official at the meeting, Letta agreed to speed up clearing a backlog of bills the state has racked up with companies by accelerating plans to pay off 40 billion euros ($51.89 billion) in arrears over the next two years.

But there was little progress on two other contentious issues, the unpopular IMU housing tax, which the center-right People of Freedom party (PDL) want to scrap, and plans to stop a planned one percentage point increase in sales tax.

“We need to find a solution for sales tax and IMU within the 2013 budget, which is still rigid and does not have flexibility. The funding for these measures must be found within the deficit parameters and it’s not simple,” Letta said.

The coalition partners are now due to meet in a fortnight’s time for further assessments.

Letta has pledged to ease the severe austerity policies pursued by predecessor Mario Monti’s government and cut a youth unemployment rate of around 40 percent, while respecting the tight spending limits imposed by European Union budget rules.

But progress has been hampered by tensions in the coalition between Letta’s center-left Democratic Party (PD) and the PDL, the two rivals that were forced together by the deadlocked national elections in February.

On Thursday, the International Monetary Fund warned that accelerating reforms was essential if Italy is to restore growth to an economy which the Fund forecast would contract by 1.8 percent this year.

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