ROME, Sept. 10 (Xinhua) -- While the Italian economy is showing signs of gradual improvement with production levels reaching a turning point, political instability poses a threat to the country's much needed recovery.
Italian central bank governor Ignazio Visco said on Tuesday that a "fall in production should stop in the coming months," consistent with the latest estimates of national statistics agency Istat.
But though recovery is "now at hand," downside risks heightened by "investors' concerns about possible political instability" remain significant, he added.
Prime Minister Enrico Letta's left-right coalition government could be in danger of collapsing in the fallout of the supreme court's decision last month to make definitive a tax-fraud conviction against former premier and media entrepreneur Silvio Berlusconi, resulting in one year of house arrest and requiring the lower court to reconsider a ban from politics.
Key members of Berlusconi's center-right People of Freedom (PdL) party, which shares power in parliament with the center-left Democratic Party (PD), have threatened to bring down the government if the Senate backs a move to strip Berlusconi of his parliamentary seat under the terms of an anti-corruption law, which the PdL said was unconstitutional.
The two parties are traditional foes but they were forced to form an alliance in April to overcome two months of standstill originated from an inconclusive election.
The unnatural coalition at the helm of a country in its longest recession over 20 years has survived four turbulent months in power with results that economists said were fairly positive but not enough to restart the economy.
Caught between the European Union's tight budget constraints and its internal divisions, the government has stabilized yields for state bonds by assuaging investor fears that Italy could be forced to default on its debt payments, chief economist of Nomisma research institute Sergio De Nardis told Xinhua.
Cited as an example were a series of incentives for small- and medium-sized companies to make investments and borrow at low rates, the pledge to guarantee 40 billion euros (52 billion U.S. dollars) worth of state debt payments to industries before the end of 2014 and a package to fight rampant unemployment among the under-30s.
However, De Nardis added, the uncertainty of economic policy and the persistent weakness of household income still keep domestic demand low, leaving Italy "unable to meet the needs of economic recovery and reduce the serious imbalances in the labor market."
Letta, who contributed to restore his country's credibility continuing the job started by his predecessor Mario Monti, has repeatedly said that his government can and must keep working.
The coalition has made some "sufficiently positive" steps by introducing a series of small regulations combined with a few reforms that are awaiting for actualization, according to Tonia Mastrobuoni, an economic journalist of La Stampa newspaper.
These moves allowed Italy to achieve closure of a European Union deficit-infraction procedure and take advantage of the low interest rate policies pursued by the European Central Bank.
"However, with little funds available to sustain the economy and at a time when strong action is needed to protect families, priorities should be better outlined," she told Xinhua.
If the government's decision to satisfy Berlusconi's request to abolish a housing tax was seen as a sign of its weakness, the guilty verdict against the 76 year old has further underlined tensions within the fragile alliance as well as the "real worries" for a possible political crisis, Mastrobuoni said.