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Italy's Letta appeals for stability ahead of key week

Italian Prime Minister Enrico Letta arrives at the construction site of Expo 2015, on the outskirts of Milan, September 13, 2013. REUTERS/ S
Italian Prime Minister Enrico Letta arrives at the construction site of Expo 2015, on the outskirts of Milan, September 13, 2013. REUTERS/ S

By Silvia Ognibene

CHIANCIANO, Italy (Reuters) - Prime Minister Enrico Letta appealed for political stability on Saturday ahead of a week which could signal the end of his government, warning a political crisis would push up borrowing costs and throw Italy into chaos.

"I want to send a very strong message here, we can no longer afford this instability based on political games," Letta said at a convention of the centrist UDC party in the Tuscan town of Chianciano.

"Everything depends on stability, without stability we have no chance of pulling through," he said, stressing that hopes of economic recovery and fiscal consolidation would be scuppered if his four-and-a-half month old government fell.

On Wednesday a Senate panel will vote on whether Silvio Berlusconi should be expelled from parliament following a conviction for tax fraud, and the media tycoon's allies have threatened to sink the government if the vote goes against him.

Letta's left-right coalition, which needs the backing of Berlusconi's People of Freedom party (PDL) to survive, has bickered since it was formed in April but the infighting has intensified since Berlusconi was sentenced last month.

Letta said he was "absolutely convinced" that Berlusconi would not bring his administration down.

"My forecast is that, the day after, nothing will happen that will put the government in crisis," he said. "No one will take responsibility for throwing everything up in the air and then having to explain what they have done to the Italians."

The political uncertainty of the last few weeks has already raised Italy's borrowing costs, Letta said, but he staked his credibility on Italy meeting its budget deficit target of 2.9 percent of output this year.

"We won't just do our best to meet the target, we will meet it full stop. Credibility is everything, we have promised to do it and we will do it," he said.

Economy Minister Fabrizio Saccomanni used similarly categorical terms at a meeting of EU finance ministers in Vilnius on Friday to respond to growing concerns in Italy and among its European partners that the deficit is overshooting.

"We will do whatever it takes, and believe me it will be enough," Saccomanni said, deliberately echoing the words used by European Central Bank President Mario Draghi last year in his vow to end the euro zone's debt crisis.

The pledges by Letta and Saccomanni suggest emergency deficit curbs will be imposed when Italy presents its 2014 budget plan in October. Data to the end of August point to a fiscal gap significantly higher than in 2012, when it came in at 3.0 percent of output, bang on the European Union's limit.

Letta warned that one consequence of the fall of his government would be that the budget would be "written by Brussels" and would inevitably be far more draconian than his own plans.

Wednesday's vote is not the final stage in the debate on Berlusconi's fate, which must eventually go to a full vote on the Senate floor, but Berlusconi may choose to act pre-emptively as soon as he sees the majority is against him.

(Writing by Gavin Jones; Editing by Robin Pomeroy)

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