ITALY / ECB : 5 Sept UPDATE: As Silvio Dithers Over Reforms...Trichet Warns Of Sticking To Austerity Measures; Bond Yields Rising; Downgrade Looks "Probable".

                                         LINK CHANGE / BLOOMBERG


      PM Silvio Berlusconi has flip-flopped several times over Italy's proposed austerity budget measures.
     And...it is driving ECB head Jean-Claude Trichet (above)...and now the markets...crazy.
     Trichet has declared that sticking to an austerity plan was "absolutely decisive" to Italy's credit worthiness.
     The ECB has recently been buying Italian and Spanish bonds...some $60B...to hold down yields.
     But some speculate purchases may be reduced...to pressure Silvio and his MPs to finally pass the rejiggered E46B budget.

     Now Italian businessmen are afraid Berlusconi won't be able to adapt to the ECB's demands.
     Economist Nouriel Roubini has insisted that the controversial PM resign...so Italy can continue to sell bonds.
    Berlusconi's and Italy's problem is that the PM's fragile ruling coalition is led by ultra conservative Umberto Bossi. Bossi killed recent austerity proposals like the extra tax on high earners...and a plan to consolidate small towns to save on administrative costs.