Northern League leader Umberto Bossi set out his demands to Silvio Berlusconi at the group's annual meeting in Pontida, Italy on June 19,2011.[Photo/Agencies]

ROME -- Italian Prime Minister Silvio Berlusconi and Umberto Bossi, the head of the second leading party in the government coalition, announced Sunday that despite a series of political defeats they would move forward with their fragile partnership.

The main concession Berlusconi made to Bossi was a promise of tax cuts, which commentators immediately said could tilt Italy into an economic crisis by ballooning the country's debt at a time when economic growth and tax revenue have already slowed dramatically.

But pollsters said the plan could pay dividends from a political perspective by helping boost approval levels for both Berlusconi and Bossi.

In recent months, Berlusconi has suffered from a series of setbacks, including three open court cases, sagging approval levels, the defection of key allies, and, most recently, an embarrassing set of losses in nationwide mayoral elections.

As Berlusconi's fortunes have unraveled, Bossi has threatened to pull the support of his party, the Northern League, the second largest party in the ruling coalition. If he did that, the coalition would collapse, forcing early elections.

To prevent that from happening, Berlusconi has given in to most requests from Bossi's party, including the promise of tax reductions. But for Berlusconi, the main victory was that his beleaguered government coalition would remain intact, at least for the time being.

"It is absolutely confirmed that there are no alternative to our alliance (with Bossi) and that we are determined to continue without elections and to make choices in areas where there is strong agreement," Berlusconi said after the meeting with Bossi.

But the news comes amid uncertain times for Italy: economic growth is anemic, inflation is on the rise, and, on Friday, the US credit ratings agency Moody's said it would downgrade the country's debt over concerns that problems in other European countries could hurt Italy's already weak economic recovery.

The Italian newspaper La Repubblica reported Sunday that Minister of Finance Giulio Tremonti opposed the tax cut plan and that he urged austerity and government spending cuts rather than tax cuts.