UPDATE 1-Berlusconi hails EU decision not to warn Rome

BRUSSELS, July 5 (Reuters) - Italian Prime Minister Silvio Berlusconi hailed Monday's decision by EU finance ministers not to show Rome a yellow card over its budget deficit as a good result and one he had expected.

Acting as stand-in economy minister after the shock resignation of key cabinet ally Giulio Tremonti on Saturday, Berlusconi managed to convince European Union finance chiefs not to sanction Italy which is struggling to rein in its deficit.

"It's a good result as I had predicted," Berlusconi told reporters as he left the meeting of finance ministers where he had set out measures to save the budget 7.5 billion euros by the end of 2004 and avoided an embarrassing EU "early warning".

Ministers accepted the plan, which Berlusconi is set to put to his cabinet within the next 10 days.

Berlusconi said Italy would put into effect the spending cuts and one-off revenue-earning measures this year, and in 2005 push ahead with controversial tax cuts on which he has staked his political reputation as the leader of Italy's centre-right.

"We are in the process of discussing for 2005 the (economic) boost and the reduction of tax bands which were in the government programme and are still in the government programme," he said.

PARALLEL CUTS

The issue of tax cuts was central to the coalition dispute that led to Tremonti's resignation as some members of Italy's coalition government were unhappy the planned 12.5 billion euro income tax cuts would favour the rich more than the poor.

Ratings agency Fitch said earlier on Monday tax cuts that were not properly funded would "put very negative pressure on the sovereign rating".

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