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ROME (Reuters) - Silvio Berlusconi urged Italian Prime Minister Enrico Letta on Friday to seek a "test of strength" with Germany, saying budget austerity imposed by Berlin was killing Italian companies and putting the euro zone at risk.
Italy's economy is mired in a recession that has been dragging on since mid-2011, driving up unemployment and forcing the closure of thousands of companies.
Germany, Europe's biggest economy, has resisted calls to loosen budgetary constraints on southern European countries.
Berlusconi's comments underline the challenge facing Letta, whose fragile left-right coalition depends on support from the media tycoon's centre-right People of Freedom party but who must also balance commitments made to Italy's European partners.
In remarks published in the political daily Il Foglio, former premier Berlusconi said Europe needed "decisively expansive" economic policies to prevent the single currency being destabilized.
"The government has to seek a test of strength without creating a big outcry but with great resolution, with the aim of convincing countries in Europe and particularly Angela Merkel's Germany that we face a stark choice," the billionaire said.
"Either our voice is heard strongly and clearly or the government will lose the popular legitimacy which national unity, in support of a grand coalition, guarantees it," he said.
Italy, struggling with a public debt of more than 130 percent of gross domestic product despite repeated rounds of tax hikes and spending cuts, has record jobless levels and a youth unemployment rate of about 40 percent.
Letta has called for greater emphasis on stimulating economic growth but he has also pledged to maintain Italy's strict budgetary targets, keeping the public deficit below 3 percent of gross domestic product.
Berlusconi's remarks were the latest in a series of barbs directed against Germany. He said Italy could not accept seeing its companies forced out of business, move abroad or be obliged to "restructure to the point of destruction".
"An Italy which loses weight and wealth beyond what we have lost already, ready to be auctioned off through the domineering methods of those in a position of strength ... is not acceptable," he said.
(Reporting By James Mackenzie; Editing by Pravin Char)