Berlusconi warns against 'traitors' in his ranks

"We have to remain united," the 77-year-old was quoted by participants as saying at a meeting in Rome of lawmakers from his Forza Italia (Go Italy)
party, formerly known as the People of Freedom.

"We wash our dirty linen at home," Berlusconi said, after several allies distanced themselves from his move on Saturday to withdraw the party's five
ministers from the cabinet.

Berlusconi also warned against would-be "traitors" in his ranks and said he would never support "some little government of transfers and runaways".

Appearing to backtrack from his earlier call for an immediate end to the government, however, he said the cabinet should be given a few more days to
scrap a property tax, avert an increase in sales tax and pass next year's budget before early elections are called.

Italian shares meanwhile fell as the recession-hit country prepared for a showdown in parliament on Wednesday between the scandal-tainted billionaire tycoon and Prime Minister Enrico Letta.

Stocks closed down 1.2 percent but the rate demanded by investors on 10-year government bonds fell to 4.431 percent from 4.416 percent on Friday
after rising sharply to 4.598 percent earlier.

After weeks of bickering, Berlusconi has said he wants his party out of the fragile coalition with the left.

But the outgoing ministers, while toeing the party line by formally resigning, have dissented with Berlusconi, a figure who once commanded
complete loyalty from his ranks and dominated Italian politics for much of the past 20 years.

"How long will the blind and absolute obedience to the leader last this time? Berlusconi's world has never been in such disagreement with Berlusconi,"
the La Stampa daily said in an editorial.

Letta, a moderate leftist who only came to power this year and has struggled to boost a flagging economy, accused the three-time former prime
minister of a "crazy and irresponsible" act.

The 47-year-old Letta has warned against elections at a sensitive time for Italy just as the economy was hoping to shake off two years of a recession
that has pushed unemployment to record highs.

He is hoping members of Berlusconi's party will rebel against their weakened leader by staying in government and voting to support it in a
parliamentary confidence vote on Wednesday.

One possible scenario is that Letta's government could limp on - either in its current form or following a reshuffle - with support from Berlusconi
rebels and breakaways from the anti-establishment Five Star Movement.

Berlusconi's gamble 'will not work'

Analysts have played down the prospect of an imminent collapse of the government, which has sent jitters throughout the eurozone.

"We have to recognise that the risk of early elections is not insignificant but we think Berlusconi's gamble will not work in the end," said Matteo Cominetta, an analyst for HSBC bank.

London-based consultancy Capital Economics said: "Berlusconi's decision to withdraw his support for the coalition government may not trigger elections. But the fragile political situation highlights the huge challenges that Italy faces."

Tensions have come to a head after the supreme court on August 1st handed Berlusconi his first-ever definitive criminal conviction for tax fraud in a long history of legal woes and sex scandals.

Berlusconi now faces expulsion from parliament and a ban from running in the next elections under a new law aimed at cleaning up Italian politics.

Berlusconi is also appealing other convictions for having sex with an underage 17-year-old prostitute and for abuse of office when he was prime minister.

"Enough blackmail! Berlusconi is constantly changing the cards on the table only for his personal problems," said Roberto Speranza, parliament leader of the centre-left Democratic Party.

Letta's coalition was forged by President Giorgio Napolitano only after a two-month deadlock between the prime minister's Democratic Party, which won February elections by a razor-thin margin, and its rival, Berlusconi's party.