By Steve Scherer
ROME (Reuters) - Italian Economy Minister Fabrizio Saccomanni will resign if the fragile coalition government flouts European Union deficit spending limits in favor of tax cuts, he told Corriere della Sera newspaper on Sunday.
The departure of Saccomanni, a former high ranking Bank of Italy official who is not affiliated to a political party, would be a blow to Italy's credibility with financial markets as it battles to emerge from its longest recession in six decades.
Italy's accounts are heading toward overshooting the EU deficit limit this year, Saccomanni said on Friday, just months after the country was taken off a black list for running excessive budget gaps in the past.
While the minister said he would do all it takes to keep the deficit below the 3 percent of output ceiling, senior coalition members have pledged to go ahead with tax cuts amid a growing sense that a national election may be just a few months away.
"Promises must be kept, otherwise I'm not staying," Saccomanni was quoting saying in an interview with Corriere. "I must defend my credibility, and I have no political ambitions."
Prime Minister Enrico Letta's government has been in near constant turmoil since it was formed five months ago by the country's two biggest parties, traditionally bitter rivals.
Letta's Democratic Party (PD) and Silvio Berlusconi's Forza Italia (FI) agreed to govern together after an inconclusive national vote in February, but both sides appear to be mulling an early vote as a way out of the awkward alliance.
"I'm not going to make a desperate search for a billion euros if in February there's going to be a vote," Saccomanni was said to say in the Corriere, explaining that reforms and the management of the public accounts required political stability.
To meet the EU deficit target, Saccomanni needs 1.4 billion euros and he indicated a one-percentage-point increase of the main sales-tax rate of 21 percent scheduled for October 1 cannot be cancelled without worsening the public accounts.
The economic policy impasse comes at an especially bad moment for the coalition. Berlusconi is reeling from a definitive conviction for tax fraud last month and an impending vote to strip him of his Senate seat, and the PD is torn by an internal power struggle between Letta and Florence Mayor Matteo Renzi, with a primary vote to pick a new leader set for December 8.
Letta is travelling to the United States and Canada this week, but will return Friday to preside over a cabinet meeting where a decision over the sales-tax increase must be taken.
SLOGANS AND PROPAGANDA
Saccomanni toned down his threat later on Sunday in comments from the sidelines of a conference in Tuscany.
"The moment has come to have a calm and serious debate over the public accounts," Saccomanni said in comments broadcast by SkyTG24. "Italians deserve to know exactly how things stand instead of hearing only slogans and propaganda."
Letta fully supports his Economy Minister, a source in the prime minister's office said.
"We will not continue to be part of a coalition whose government wants to raise taxes on Italians," Daniela Santanche, an influential lawmaker close to Berlusconi who favors an early vote, said on Sunday, urging the minister to step down.
But Renato Brunetta, FI's group leader in the lower house, was conciliatory after having repeatedly said in recent weeks the survival of the government depended on the cancellation of the value-added tax (VAT) hike.
In an interview broadcast on state TV, Brunetta said he did not want Saccomanni to resign and that he was confident the VAT increase would be averted.
Deputy Economy Minister Stefano Fassina of the PD warned an early vote would be "irresponsible", but he said funding could be found to head off the sales-tax increase.
It would cost about 1 billion euros to cancel the sales-tax hike, but another newspaper, Il Messaggero, estimated on Sunday that Saccomanni needed a total of 6 billion euros by the end of the year to meet the deficit target while funding other promised measures, including the country's military missions abroad.
(Editing by Mark Potter)