Italy Economy Shrinks Faster Amid Silvio Berlusconi Senate Explusion Crisis

Italy's economy contracted more than expected during the second quarter, even as the other major eurozone states saw output pick up when the currency area as a whole exited its painful recession.

A worsening domestic economic picture comes as Italy faces political turmoil over the potential expulsion from the country's senate of disgraced former Prime Minister Silvio Berlusconi, which threatens to split the delicate coalition government.

The Mediterranean state, which is the third largest economy in the eurozone, saw GDP fall by 0.3% in the three months to the end of June, worse than an original estimate by the official Istat statistics agency of 0.2%.

Bank of Italy Governor Ignazio Visco said insisted in a speech that "the decline in output should come to a halt in the coming months".

"The downside risks to this scenario are compounded by investors' concern about possible political instability," he added.

Berlusconi was convicted by Italian courts of tax fraud and handed a suspended jail sentence as well as a five year ban on holding public office. Following an appeal by Berlusconi, the jail sentence was upheld but the public office ban was suspended pending a judicial review.

However, a senate committee is separately probing whether it can force Berlusconi, leader of one half of Italy's coalition government, the centre-right People of Freedom Party (PDL), out of office.

Senior PDL members have said they would collapse the coalition if their leader is turfed out of the senate, a move which could open old eurozone crisis wounds and send Italian sovereign debt yields soaring.

Enrico Letta, the Italian prime minister and leader of the centre-left Democratic Party (PD), has warned of "permanent chaos" in the country's politics, but his party backs an expulsion of Berlusconi from the senate.

A clear victor in Italian elections has failed to emerge, leaving the country with an extended period of technocrat leaders and coalition politics.

Italy's economic struggle amid the eurozone crisis - which saw its sovereign debt yields at times teeter on the brink of unsustainable - and billions in public spending cuts is not seeing the same steady recovery as other big nations in the single currency region.

Both France and Germany, the two eurozone economies bigger than Italy, saw output pick up in the second quarter.