By Ilaria Polleschi
PONTIDA, Italy (Reuters) - Italian Prime Minister Silvio Berlusconi's coalition allies said on Sunday they would stay in his struggling center-right government for the moment despite two crushing electoral losses in recent weeks.
"This is a moment favorable for the left," Umberto Bossi, leader of the pro-devolution, anti-immigrant Northern League, told a party rally. "We will not be responsible for sending the country to ruin."
Berlusconi's coalition is reeling from local election and referendum defeats which have boosted the center-left opposition and raised speculation that the government could fall apart before its term ends in 2013.
Northern League support is vital for the survival of the government, which faces two votes in parliament this week that it must win to be able to carry on.
The League has been increasingly at odds with the prime minister's PDL party with ministers openly sniping at one another in the press over issues ranging from tax reforms to League calls to shift government ministries to northern Italy.
Speaking in Pontida, the northern town that was birthplace in 1167 of the medieval Lombard League, Bossi called for more power to the regions, cuts to military missions abroad and reforms to lower the tax burden for small firms.
"Fiscal pressure has gone past all limits," he said, but stopped short of calling for sweeping tax cuts that could put the badly strained public finances at risk.
Ratings agency Moody's on Friday said it may cut Italy's credit ratings because of concerns about its ability to bring down a public debt mountain equivalent to about 120 percent of gross domestic product.
TEST OF SUPPORT
The rally in Pontida had been seen as a test of the solidity of Berlusconi's coalition ahead of announcements on tax reforms and measures to keep deficit reduction plans on track expected in coming weeks.
"(Economy Minister Giulio) Tremonti says we can't cut taxes because the markets -- London, Wall Street, America -- would destroy us, would make us end up like Greece. Tremonti says to reduce fiscal pressure we have to find the money," Bossi said.
"We'll find some money, firstly by ending these war and peace missions which cost so much," he said, to loud cheers.
Many grassroots League supporters have been angry about the party's close ties to Berlusconi, who is entangled in a series of financial and morals scandals and who is increasingly seen as an electoral liability.
Interior Minister Roberto Maroni repeated the League's call to withdraw from the military campaign in Libya, which it has opposed from the start and which the League says has unleashed a wave of illegal immigration from North Africa.
There were chants of "Secession! Secession!" from the 80,000-strong crowd, many in the League's green colors. Bossi said Berlusconi would have to agree to the party's demands if he wanted to ensure their continued support.
But despite the odd jibe about Rome, symbol of the central state, and calls to shift some ministries north, both the PDL and the center-left interpreted the rally as a sign of support for the government, a view shared in Pontida itself.
"I thought Bossi's speech had some good ideas, now they have to implement them," said 74-year-old Sergio Tarondo, from Monza. "Even though I was hoping for something more incisive, there's still an arrangement between the League and the PDL."
(Writing by James Mackenzie; Editing by Janet Lawrence)