Italy economy minister threatens to resign - paper

By Steve Scherer

ROME (Reuters) - Italian Economy Minister Fabrizio Saccomanni will resign if the fragile coalition government flouts European Union deficit spending limits in favour of tax cuts, he told Corriere della Sera newspaper on Sunday.

The departure of Saccomanni, a former high ranking Bank of Italy official who is not affiliated to a political party, would be a blow to Italy's credibility with the financial markets as it battles to emerge from its longest recession in six decades.

Italy's accounts are heading toward overshooting the EU deficit limit this year, Saccomanni said on Friday, just months after the country was taken off a black list for running excessive budget gaps in the past.

While the minister said he would do all it takes to keep the deficit below the 3 percent of output ceiling, senior coalition members have pledged to go ahead with tax cuts amid a growing sense that a national election may be just a few months away.

"Promises must be kept, otherwise I'm not staying," Saccomanni was quoting saying in an interview with the Corriere's editor-in-chief. "I must defend my credibility, and I have no political ambitions."

Prime Minister Enrico Letta's government has been in nearly constant turmoil since it was formed five months ago by the country's two biggest parties which have traditionally been bitter rivals.

Letta's Democratic Party (PD) and Silvio Berlusconi's Forza Italia (FI) agreed to govern together after an inconclusive national vote in February, but both sides appear to be mulling an early vote as a way out of the awkward alliance.

"I'm not going to make a desperate search for a billion euros if in February there's going to be a vote," Saccomanni was said to say in the Corriere, explaining that reforms and the management of the public accounts required political stability.

To meet the EU deficit target, Saccomanni needs 1.4 billion euros and he said a one-percentage-point planned increase of the main sales-tax rate of 21 percent on October 1 cannot be cancelled without worsening the public accounts.

FI's group leader in the lower house, Renato Brunetta, has said the survival of the government depends on cancelling the value-added tax (VAT) hike, and PD officials have also called for it to be scrapped.

Letta is travelling to the United States and Canada this week, but will return Friday to preside over a cabinet meeting where a decision over the sales-tax increase must be taken.

It would cost about 1 billion euros to cancel the sales-tax hike, but another newspaper, Il Messaggero, estimated on Sunday that Saccomanni needed to find a total of 6 billion euros by the end of the year to meet the deficit target while satisfying all the demands made by the parties in the ruling coalition.

(Editing by Mark Potter)