Prime Minister Silvio Berlusconi met with his Northern League coalition partners on Tuesday for tense negotiations over disputed structural reforms including pensions ahead of a key European summit.
Under increasing pressure from European Union partners to make economic reforms, the embattled centre-right government still has some room for manoeuvre but risks falling, Infrastructure Minister Altero Matteoli said Tuesday.
"We are in the processes of negotiating. I think there is this hypothesis (that it could fall), but there is a margin for manoeuvre," he said.
As Italy scrambled to assure European allies it could shape up its economy, Berlusconi and top party members attempted to thrash out the details of new measures with senior League members Roberto Calderoli and Roberto Maroni.
A key sticking point is a reform to pension schemes. While Berlusconi's People of Freedom party is in favour of modifying the pension system, the League has threatened to pull out of the coalition and bring down the government if extensive changes are made.
On Sunday, Berlusconi promised Brussels he would extend the retirement age to 67 years, to bring Italy into line with other European countries.
But Northern League leader Umberto Bossi vociferously defends the two current systems, which allow early starters to take their pension from 60-years-old onwards, while others can retire from 65.
The issue is considered non-negotiable by voters in his Northern Italy stronghold.
At this point, Matteoli said, both parties "are in agreement that it would be better not to cut pensions but in that case they would need to find another solution, which is not easy."
No decisions came from an emergency cabinet meeting Monday evening and Berlusconi has little time to find solutions after coming under overt public pressure from his EU partners on Sunday to slash the country's debt.
Saddled with a 1.9 trillion euro debt mountain, 120 percent of its GDP, EU leaders demanded action from Berlusconi before the Wednesday 1600 GMT summit.