Italy seeks to reassure as crisis looms

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Italy seeks to reassure as crisis looms
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Despite ongoing uncertainty over the future of the Italian government caused by a criminal conviction handed to Silvio Berlusconi, the country's finance minister has dismissed fears of a major political crisis.

"I do not [see a major political crisis coming to Italy] as matter of fact. I think it would be quite irrational," Fabrizio Saccomanni told CNBC ahead of a Senate vote this week on whether to expel former Prime Minister Silvio Berlusconi from Italian politics for a tax fraud conviction he received in August.

The vote threatens to bring down not only Berlusconi, who heads the People of Liberty (PdL) party, but the fragile coalition government in which the PdL is a powerful component. That, in turn, would jeopardize economic reforms already delayed or reversed this year.

(Read more: Berlusconi 'remarkablyresponsible': Mario Monti )

The threat of further political and economic uncertainty has not been lost on financial markets, with investors demanding higher yields to hold Italy's 10-year bonds over Spain's for the first time in 18 months last week.

Italy's finance minister defended the government and insisted the political drama would not derail Italy's economic plans, however.

"The uncertainty so far has [had] no impact on the fiscal policy, I think as I said we have a little bit of volatility in terms of spreads but we have seen basically no major change," he told CNBC in Vilnius where he was attending an informal meeting of European finance ministers.

The decision on whether to ban Berlusconi from politics is due to be taken on Wednesday. It has already been subject to delays, however, and has caused widespread controversy with loyal members of Berlusconi's party threatening to withdraw their support for

Prime Minister Enrico Letta's government if their leader is ousted.

Since its inception in April, the coalition has struggled to implement much needed economic reforms and has even reversed unpopular measures designed to increase tax revenues.

(Read more: Kiss-and-tell: Former ECB insider reveals all in book )

Saccomanni defended his ministry's work, however, saying that the set of policy measures taken up until now "have been measures to revive economic activity."

"Of course it is a psychological indicator but if we had a major political crisis, I assume the spread would increase and long term interest rate would also increase, and we would have to factor this in future developments. But at present I don't see anything of that sort," he said.

(Read more: Why Germany may be Italy's biggest worry )

His comments come as Prime Minister Letta appealed for political stability, warning that a crisis could push up borrowing costs. "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 on Saturday. "Everything depends on stability, without stability we have no chance of pulling through."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt . Follow us on Twitter: @CNBCWorld



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