Italy rocked by bribes inquiry into PM

Italian magistrates issued a formal notice yesterday to Silvio Berlusconi, the Prime Minister, that he is under investigation on possible charges of corruption, dealing a sensational blow to Italy's new government and its promises of reform.

The inquiry relates to allegations that bribes were paid to officials of the finance police to ensure favourable tax treatment for companies owned by Mr Berlusconi, a television tycoon turned politician.

The Prime Minister said he would stay on. ``I will not resign,'' he said. ``Only a clear and explicit vote of no confidence by parliament would force me to write my resignation letter.'' His partners in the centre-right coalition promptly offered him pledges of support. If Mr Berlusconi should have to step down, the neo-Fascist leader Gianfranco Fini could emerge as the key power broker in the weeks ahead.

The formal notice simply warns Mr Berlusconi that he is under investigation and does not imply any guilt. But the magistrates' action has damaged his public image and judicial sources in Milan predicted last night that there could soon be other legal moves against him.

News of the legal warning was given to the Prime Minister in Naples, where he was presiding over a United Nations conference on organised crime. It shook the Milan stock exchange and the lira fell to a new record low of 1,034.00 against the German mark.

Dealers and market analysts feared a political crisis could delay passage of the Italian government's draft budget for 1995, which contains measures to reduce the enormous public sector deficit by about pounds 20bn and to reform the pension system. The budget has cleared the Chamber of Deputies, where the Berlusconi coalition has a 51-seat majority. But it still has to get through the Senate, where the government lacks an overall majority.

Mr Berlusconi came to power last spring after corruption scandals brought down the old political parties. He promised a ``New Italy'' of reform, privatisation and unfettered free enterprise. Last week he disclosed that he keeps a portrait of Baroness Thatcher on his wall.

But he has become embroiled in legal difficulties over the financial affairs of his giant conglomerate, Fininvest, a holding company that controls about 90 per cent of Italian private television.

The corruption inquiries centre on alleged payments totalling about pounds 110,000 to tax officials auditing accounts at two Fininvest subsidiaries, the Mondadori publishing group and Mediolanum Vita, an insurance company. Mr Berlusconi's brother Paolo was arrested, jailed and then placed under house arrest this year by magistrates investigating the payments.

Magistrates in Milan say privately that the alleged tax bribes are only the tip of the iceberg in their inquiries into the Berlusconi empire and its political allies.

Further damaging disclosures could still come from the former Italian prime minister Bettino Craxi, who has retreated to a villa in Tunisia and in his absence has been sentenced by a Milan court to eight years in jail for

corruption.

Mr Craxi, a Socialist, was Mr Berlusconi's closest political ally for almost two decades and was prime minister during the 1980s. In telephone calls and faxes to Italian newspapers, he has issued veiled threats to tell all he knows about corrupt payments to political parties. Mr Craxi says his doctors forbid him to return to Italy on health grounds.

Mr Berlusconi's political movement, Forza Italia, lost ground in local elections at the weekend and the bribery affair is likely to weaken him further within the coalition. He shares power with Italy's neo-Fascist movement, the National Alliance, and with the Northern League, which seeks a federal Italy and autonomy for the rich north. He has been sharply criticised by the League, whose voters are particularly sensitive to corruption.

'I will not resign', page 12

Leading article, page 17

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