Italy's premier under pressure to win EU budget leeway

ROME (Reuters) - Italian Prime Minister Enrico Letta won a final confidence vote on Tuesday and left for Berlin to push his agenda of easing austerity to revive the economy with Chancellor Angela Merkel, champion of Europe's increasingly unpopular belt-tightening.

The 46-year-old Letta was sworn in on Sunday at the head of an uneasy right-left coalition government and won a confidence vote in the Senate after a similar victory in the lower house on Monday.

He immediately came under pressure from coalition partners to negotiate budget leeway for Rome with its European Union partners, an uphill task in Germany at least.

Before the Berlin visit, conservative German lawmakers warned Letta was unlikely to find Merkel a willing ally for easing debt rules only months before she faces an election herself, with voters strongly in favour of making heavily indebted eurozone states like Italy cut spending.

"It is certainly not the moment for debt-financed growth programmes," Norbert Barthle, a member of the lower-house budget committee, told Reuters.

Letta took the helm of the euro zone's third biggest economy in the middle of a severe crisis, with unemployment at 20-year highs and the recession, already matching the longest since World War Two, seen dragging on all year.

In a sign of intense pressure he already faces, four-times Prime Minister Silvio Berlusconi threatened to pull his centre-right People of Freedom party out of the coalition if it does not abolish an unpopular housing tax.

Berlusconi, who is not in cabinet but is playing a decisive role behind the scenes, added that the government must re-negotiate EU deficit commitments, echoing similar comments made earlier by two of Letta's own ministers.

But Foreign Minister Emma Bonino, a former European commissioner, responded that Italy could not alter its targets, a view repeated by a spokesman for the European Commission.

"The targets, the objectives remain those that have been agreed," commission spokesman Simon O'Connor said.

COMMON EUROPEAN DESTINY

Speaking in the Senate before the confidence vote, Letta argued that Italy's need to ease austerity during the economic slump was shared by many European countries.

"What is happening in Italy is happening all over Europe," he said. "Either there is a common European destiny or each country will eventually decline on its own."

On Wednesday, he travels to Paris where he is likely to find a more sympathetic hearing from French President Francois Hollande, who is also pushing for a switch of emphasis towards growth rather than austerity.

He will then go to Brussels, where he plans talks with European Commission President Jose Manuel Barroso.

On Tuesday Industry Minister Flavio Zanonato and Regional Affairs Minister Graziano Delrio said Italy would seek to exempt public investments from budget calculations, which would in effect allow increased spending.

Italy's 2013 deficit target now stands at 2.9 percent of gross domestic product, just a notch below the EU ceiling of three percent.

The country's biggest labour unions on Tuesday said they would hold a joint protest on June 22 to push for more job creating policies. The danger from rising social tensions was highlighted on Sunday in a dramatic gun attack in Rome.

An unemployed man shot two police officers in front of the prime minister's office as Letta's government was being sworn in at the presidential palace. He told investigators he wanted to strike at politicians before being stopped at a police cordon.

To ease the pain of austerity, Letta has proposed freezing a planned increase in sales tax and suspending the housing levy opposed by Berlusconi, although he has not said he would scrap it altogether as the centre-right is demanding.

Those two measures alone will cost about 4 billion euros in lost revenue this year, and labour unions are asking that the government set aside another billion euros to fund benefits for idled factory workers. Letta has not given details of how he would raise revenue to fund tax reductions.

($1 = 0.7634 euros)

(With additional reporting by Giuseppe Fonte, Stephen Brown in Berlin, and Adrian Croft in Brussels; writing by Steve Scherer; editing by Barry Moody and Mike Collett-White)