Italian centre-right leader Silvio Berlusconi pulled his ministers out of the cabinet on Saturday, effectively bringing down the government of Prime Minister Enrico Letta and leaving the euro-zone's third-largest economy in chaos. Talks will now start to find a parliamentary majority to back a new cabinet and avoid going back to an election just seven months after the last one. The relentless political jockeying that has defined Letta's five-month tenure has already thwarted efforts to push through important reforms Italy needs to emerge from a two-year recession, a decade-long economic lethargy, a 2-trillion-euro public debt and youth unemployment of around 40 percent. The resignations will delay those reforms even further. "So many measures we were working on now risk being set back," Italian LabourMinister Enrico Giovannini told Rai state television. "On Monday our borrowing costs are going to rise by many points." Berlusconi's move comes a day after Letta challenged the centre-right party to support him in a confidence vote in parliament. Late on Friday, the cabinet failed to agree vital fiscal measures to bring the budget deficit within European Union limits, leaving the fragile coalition of traditional rivals from the left and right near total breakdown. Tensions between the two sides had been rising for weeks following moves to expel Berlusconi from parliament after his conviction for tax fraud last month. The Friday cabinet meeting had been intended to find funding to avert an increase in sales tax from 21 percent to 22 percent. That increase, which has been fiercely opposed by Berlusconi's party, will now kick in from Tuesday.
"The decision taken by Prime Minister Enrico Letta to freeze government activities, and therefore setting off an increase in sales tax, is a serious violation of the pacts on which this government was formed," Berlusconi said in a statement on Saturday.
Letta shot back later in the evening, accusing the former prime minister of telling a "huge lie" and of using the sales tax issue as an alibi for an action motivated by his legal problems.