Schulz challenged Berlusconi in the European Parliament
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A German member of the European Parliament has apologised for calling Italy's government racist.
Martin Schulz told the Bild newspaper he was sorry that a sweeping statement he had made on Tuesday had offended the entire Italian Government.
He said he had only been referring to the leader of the Northern League party, Umberto Bossi, because of a comment he allegedly made about firing on illegal immigrants.
Relations between Germany and Italy became strained earlier this month when the Italian Prime Minister, Silvio Berlusconi, likened Mr Schulz to a guard at a Nazi concentration camp.
This sparked a major exchange of insults between politicians and media in both countries.
Relations deteriorated further when an Italian minister made comments deemed to be offensive about German tourists.
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I would like to apologise to the Italian Government. I made
a mistake
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In an interview with Germany's XXP television on Tuesday, Mr Schulz reignited the row as it showed signs of dying down.
He condemned reported proposals by an Italian minister that coastguards should fire on boats bringing illegal immigrants to the country.
"This is the second point that we have to watch - that, quite simply, a racist government is in office in Italy," Mr Schulz said.
Mr Schulz originally angered Mr Berlusconi by heckling him in the European Parliament him about legislation that provided him with immunity from prosecution, and led to the suspension of a bribery trial.
His tactics prompted Mr Berlusconi's "Nazi" jibe.
Berlusconi angered Germany with Nazi jibe
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In the row which followed, Italian tourism minister Stefano Stefani described German tourists as "hyper-nationalistic blondes", prompting Chancellor Gerhard Schroeder to cancel a holiday in Italy.
Mr Stefani resigned at the end of last week after fears that thousands of German tourists might join the chancellor's boycott.
He said he had not been referring to all Germans - only those "like Mr Schulz".
The comment that coastguards should fire on immigrant boats was allegedly made by Mr Berlusconi's coalition partner, Umberto Bossi, head of the far-right Northern League, although he later said he had been misquoted.
Mr Stefani is also a member of the Northern League.