The issue had created fierce tensions between the right-wing League and the anti-establishment 5-Star Movement, threatening to pull their alliance apart as the two parties compete ahead of this month's European Union elections. The outcome is a win for 5-Star, whose support is based on a squeaky-clean image and a hard line against corruption, and a setback for the League, whose leader Matteo Salvini had vigorously defended the official.
Armando Siri, a League transport ministry undersecretary and economic adviser to Salvini, was put under investigation last month for allegedly accepting a bribe from a wind farm entrepreneur who has been linked to the Mafia. Both Siri and the businessman have denied any wrongdoing.
5-Star had insisted Siri should go, while Salvini argued he should remain in government until proven guilty in court. Conte sacked Siri at a cabinet meeting on Wednesday, earning the applause of 5-Star leader Luigi Di Maio and the grudging acceptance of Salvini, who said the government would carry on with its agenda despite the friction over his close aide.
"We have so many things to do that no-one will change my view that Italy needs a government," Salvini told reporters. He added that even if, as opinion polls suggest, the League fares much better than 5-Star at the EU elections, he will not push for a cabinet reshuffle to give his party greater clout.
Relations between 5-Star and the League have deteriorated in the run-up to the May 26 EU vote, with the two parties often acting more like bitter political enemies than cabinet allies. The tensions have pushed up Italy's borrowing costs, with the gap between its benchmark bond yields and safer German Bunds increasing on Wednesday to the widest in more than two months. The spread narrowed partially after Siri's dismissal and the parties' pledges to plough on together.
Di Maio said he was "very proud" of Conte's decision to sack Siri and insisted the coalition would remain in power for a full term despite the internal strife. "It is not a victory for the 5-Star Movement, but for Italians," he told reporters, adding that corruption was a "national emergency" that had to be tackled head on.
Conte, a former academic who is close to 5-Star, said the cabinet meeting had been "open and loyal". There was no immediate comment from Siri, who remains a member of the upper house Senate after losing his government role. (Reporting by Giuseppe Fonte and Angelo Amante, writing by Gavin Jones; Editing by Crispian Balmer and Catherine Evans )
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