Silvio Berlusconi vows to stay

ROME (Reuters) - A combative Prime Minister Silvio Berlusconi, said on Thursday he would keep governing with "even more grit" after Italy's top court lifted his immunity and said he would show that corruption charges against him were "laughable."

But commentators warned that the political tension stemming from Wednesday's ruling from the country's highest court could lead to de-stabilisation that could spill over into the economy and the legislative process.

"The government will forge ahead calmly, tranquilly and with even more grit than before because this will be absolutely indispensable for freedom and democracy in this country," Berlusconi said in a morning radio interview.

In a major blow for 73-year-old Berlusconi, Italy's top court ruled that a law granting him immunity from prosecution while he is in office violates the constitution. The verdict will reopen two trials against him that were suspended.

Berlusconi has attacked Italy's president, the bulk of the media, magistrates and the constitutional court that stripped him of immunity of being leftists scheming against him.

"The two trials against me are false, laughable, absurd, and I will show this to Italians by going on television and I will defend myself in the courtroom and make my accusers look ridiculous and show everyone what stuff they are made of and what stuff I am made of," he said.

Analysts have said the verdict was bound to weaken Berlusconi and make tough economic policy decisions less likely as the third largest economy in the euro zone struggles to recover from its deepest recession since World War Two.

DANGEROUS TENSIONS, NERVES OF STEEL

While there appears to be no short-term threat of early elections, commentators on Thursday said the ramifications of the court decision and Berlusconi's strong reaction had raised political tensions to a dangerous point not seen in years and that it could spill over into the economy.

"This could have destabilising effects on politics and the legislature," said an editorial in Il Sole 24 Ore, Italy's leading business daily. "Who would be interested in going down to this precipice?"

Il Sole, one of Italy's most respected and sober newspapers, said the only solution to the crisis was "a patient search for a style of government that is suitable to the economic and social situation of the country."

Berlusconi's personal attack on President Giorgio Napolitano in particular sparked what commentators said could turn into a dangerous and destabilising clash between two of the highest offices of the land.

After Napolitano, a former communist, rejected Berlusconi's charge that he was still partial to the left, Berlusconi angrily said, "I don't care what the head of state says, I feel like I am being made a fool of."

An editorial in Rome's Il Messaggero called for "nerves of steel" to keep the tensions from getting out of hand.

"The real problem is the good of the country," it said.

But it appeared clear that the polarisation could get worse. Maurizio Gasparri, Senate leader of Berlusconi's coalition, told a television programme a big national demonstration to support the prime minister was being planned.

Berlusconi's lawyers had warned that overturning the law would leave the prime minister so entangled in the courts that he would be unable to do his job properly.

Berlusconi, who has already been weakened by sex scandals, complained after the court decision that he would have to "leave public service for a few hours to go to (the trials) and prove that they are all liars."

The immunity law, one of Berlusconi's first acts after winning last year's election, halted all the cases against him, including one where he is accused of bribing British lawyer David Mills to give false testimony to protect his businesses.

Two other cases, one accusing him of tax fraud and false accounting in the purchase of TV rights by Mediaset and another alleging he tried to corrupt opposition senators, have also been frozen. Berlusconi denies any wrongdoing.

The immunity also covered the president and two speakers of parliament but it was Berlusconi, who has faced corruption and fraud accusations linked to his Mediaset broadcasting empire, who had most at stake from losing it.

Shares in Mediaset were down around 1 percent, among the few losers on the Milan market, which was up 0.8 percent. Shares in his publishing company Mondadori were up 1.7 percent. Asset manager Mediolanum, in which his Fininvest holding company has a key stake, was up 0.78 percent.

The spread between 10-year Italian and German benchmark bonds was unchanged at around 79 basis points. (Additional reporting by Jo Winterbottom in Milan; editing by Ralph Boulton)

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