Italy's Prodi tries to rally allies on budget

ROME, Oct 28 (Reuters) Italian Prime Minister Romano Prodi tried to end coalition infighting over his unpopular 2007 budget plan today, telling allies at a special strategy meeting it was a ''courageous'' first step toward mending the economy.

The centre-right opposition mocked Prodi's meeting as a desperate move following a draft budget criticised by debt ratings agencies, which downgraded Italy this month to a ratings level on a par with countries like Botswana and Malaysia.

The prime minister, his popularity dented in recent polls, said the budget would not resolve all of Italy's problems.

But Prodi said he hoped his stewardship of the economy would eventually allow for annual economic growth of 3 per cent -- well above any official forecast for his 5-year term.

Growth was zero last year and the government's target for 2006 is 1.6 per cent of GDP.

''We're not content with cleaning up (accounts) ... we want an Italy that grows at least 3 per cent a year,'' Prodi told leaders of his 9-party coalition.

The centre-left governs with a one-seat majority in the Senate, and opposition leader Silvio Berlusconi hopes that bickering over the budget could bring down the almost six-month-old dministration.

''This disastrous budget will be Prodi's political tombstone,'' said Isabella Bertolini with Berlusconi's Forza Italia political party.

Berlusconi's former foreign minister, Gianfranco Fini, said the meeting suggested Prodi was scrambling to contain the chaos.

Prodi denied that the meeting was called to retool spending cuts that aim to bring next year's deficit below the European Union's limit for the first time since 2002.

''This meeting wasn't called because of an emergency or to change course,'' Prodi said. ''Now that this (budget) law is ready to go before parliament, it's necessary that we meet here ... to agree on a common path to follow in the coming weeks.'' Piero Fassino, head of the largest political party in the coalition, praised the meeting as a show of centre-left unity.

The budget envisions aims to cut the deficit by around 15 billion euros (18.99 billion dollar), ''strong and difficult'' cuts Prodi said were needed due to the ''devastating situation inherited from the previous government''.

Prodi said public spending skyrocketed by 90 billion euros between 2001 and 2005.

But the government has already negotiated concessions with employers and local authorities who complained they were being hit too hard by the belt-tightening measures.

REUTERS DKB VC1956