Italy's Letta wins French backing for focus on growth

ROME - Italy's new prime minister Enrico Letta won French backing on Wednesday for calls to spur economic growth alongside budget rigour, but problems lay closer to home with coalition partners demanding tax cuts that would blow a hole in the budget.

Letta, who took his message to Berlin on Tuesday, met French President Francois Hollande and said he was "100 percent satisfied" with the meeting and Hollande's response to his calls for Europe to start focusing on growth as well as consolidation.

French President Francois Hollande (R) and new Italian Prime Minister Enrico Letta attend a joint news conference at the Elysee Palace in Paris, May 1, 2013. [Photo/Agencies]

Hollande said after the meeting: "Europe has to do the maximum it can for growth."

German Chancellor Angela Merkel struck a conciliatory tone in Berlin but gave no sign that she was willing to change her government's tough approach to the heavily-indebted countries of southern Europe, insisting there was no contradiction between growth and fiscal consolidation.

Letta has held back from calling publicly for a relaxation of deficit targets Italy has vowed to meet this year, although several ministers and prominent politicians including his coalition partner Silvio Berlusconi are pushing him to do so.

"Our government's choice is to maintain the commitments we have made towards the European Union and, within those commitments, to make the choices which we think are needed for our country to have more room for growth and lower taxes," he said after the meeting with Hollande.

Letta, who goes to Brussels later on Wednesday, said he would not be discussing concrete tax measures with European Commission President Jose Manuel Barroso until the government had held further discussions with parliament.

However, the gap between his anti-austerity rhetoric and the hard choices his potentially unstable left-right coalition faces have already become apparent in a battle over the hated IMU housing tax introduced by former prime minister Mario Monti.

The tax, among the most unpopular steps Monti took last year to calm market panic over Rome's huge public debt, has become a symbol of what many in Italy see as austerity imposed by Brussels after the fall of Berlusconi's last government in 2011.

Berlusconi, who could bring down Letta's coalition of the main center-right and center-left parties at any time, repeated on Tuesday that abolishing the tax and repaying contributions paid in 2012 was a condition for his continued support.

Letta has promised to suspend contributions due in June, pending a wider review of property taxes but he has held back from meeting Berlusconi's demands, which would cost an estimated 8 billion euros.

Even so, he has not explained where he will find around 2 billion euros to cover freezing the tax in June, with local governments, the main beneficiaries of the levy, waiting anxiously to see whether they have to seek savings elsewhere.