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Last Updated: Monday, 2 February, 2004, 23:18 GMT
Italy to unveil market reforms
Parmalat milk
Parmalat's collapse has reverberated around the globe
Italy may water down its planned reform of the way the country's financial market are regulated following concerns the changes could hamper business.

Prompted by the scandal surrounding food company Parmalat, the cabinet of Prime Minister Silvio Berlusconi is set to approve a draft law on Tuesday.

Economy minister Giulio Tremonti had called for wide-ranging reforms which would limit the national bank's powers.

Other politicians, however, are said to be pushing for less radical changes.

Accounting scandal

Following the collapse of Parmalat with a massive hole in its accounts, Mr Tremonti was keen to reassure investors and observers that Italy was ready to take steps to ensure that nothing similar could ever happen again.

At the time, he questioned the failure of the Bank of Italy to spot problems, and put forward proposals which would see the government's anti-trust office take over the role of overseeing competition between banks.

The government, meanwhile, was urged to create a new financial-markets authority to replace the watchdog Consob, giving it extra powers to supervise insurance companies and pension funds.

The Bank of Italy would focus on ensuring the stability of the country's banking industry.

As the dust surrounding Parmalat has settled, it seems that some politicians, including Mr Berlusconi, have got cold feet.

According to European Affairs Minister Rocco Buttiglione, the Bank of Italy will remain in a prime regulatory position and keep "the last word" over competition.

The minister also hinted that the regulatory framework would remain much the same, though Consob and the anti-monopoly office would gain extra powers.

Too harsh

The Prime Minister is said to be concerned that harsh new penalties for financial wrongdoing could deter many Italians from starting new businesses.

Parmalat's debts have risen to 14.3bn euros ($18.4bn; 10.1bn), its auditors say - almost eight times what the company claimed when it went bust in December.

The crisis at Parmalat was triggered by the revelation last year that bank documents relating to assets worth 3.9bn euros were false.

A number of people have been arrested so far and the company's founder, Calisto Tanzi, is currently in jail accused of fraud.

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