Silvio's Dangerous Liaison

Silvio Berlusconi, Italy's prime minister and leader of the Forza Italia party, summed up the position with a quip at the start of Tuesday's cabinet meeting: "We ought almost to be toasting your victory," he told his allies round the table. "It was, of course, Forza Italia that provided you with the votes - but you know I'm a generous man."

Though his coalition as a whole did almost as well in this month's European election as it did in the 2001 general election, Mr Berlusconi's party's tally slumped from 29% to 21%. Put another way, Forza Italia won less than 46% of the governing alliance's votes compared with more than 60% last time, and its influence was diminished.

The result, as Mr Berlusconi was about to discover at that cabinet meeting, was - and is - increased pressure from some of his allies for a change in his policies. The most insistent so far has been his deputy prime minister, Gianfranco Fini.

Though the formerly neo-fascist National Alliance, which he leads, also lost some ground in the European elections, its proportion of the right's share grew. After a heated discussion on the course the government should be taking, Mr Fini signalled he was ready to stand down - a move that would put an end to the Berlusconi government. According to the welfare minister, Roberto Maroni, who was present, Mr Fini's exact words were: "My experience in this government is finished."

Not for nothing is Italy the homeland of opera. By no means all of its politicians' threats are put into effect, and this one did not lead to the fall of the government. But it is clear that if the government is to survive it is going to have to adopt some policies more to the liking of the hard right.

Paradoxically, this could shift it towards what most people outside Italy would regard as the left. With roots deep in Benito Mussolini's fascism, the National Alliance's ideas blend social conservatism and statist economics. The party believes the government has a duty to intervene to prop up failing public companies and shield the poorer regions of the country from naked competition - that is one reason it has so many supporters in the disadvantaged south.

Earlier this year, when Mr Berlusconi, an entrepreneur from the rich north, proposed cutting taxes across the board in an effort to reinvigorate Italy's failing economy, Mr Fini and his supporters were appalled. Their main goal now is to get that initiative changed.

Mr Fini has said he will only agree to cuts if they are first extended to the poorest taxpayers. And in a move that has won him valuable support from Italy's employers' federation, he has increasingly argued for a reduction in corporation tax rather than income tax.

Here he has a good economic case: the idea of forgoing income tax is to stimulate consumption and thus production. But nowadays Italians spend more than twice as much on foreign goods as they do on Italian ones, so much of the benefit would go abroad. A cut in corporation tax, on the other hand, ought to reduce the costs of Italian industry - and that, in turn, should increase its competitiveness.

On July 5 Italy's finance minister is due to explain his country's policies to a meeting of his EU counterparts, and Mr Fini has given the prime minister until then to agree to a compromise. If, as seems likely, Mr Berlusconi bends, it will be an important triumph for the National Alliance.

The leaders of Italy's centre-left opposition will be hard put to criticise it, yet they are bound to feel just a twinge of disquiet at the advance of a movement that derives from one of the 20th century's ugliest creeds.