* Minister faces questions over rent on Rome flat
* Former aide under investigation for corruption
By James Mackenzie
ROME, July 28 (Reuters) - Italian Economy Minister Giulio Tremonti was under media and opposition pressure on Thursday over a flat belonging to a former close aide under investigation for corruption, as market rumours swirled that he might resign.
Tremonti has made no public comment on the issue so far but Umberto Bossi, head of the Northern League which is part of the governing coalition, said the economy chief was not at risk over the issue.
Asked by reporters whether Tremonti could lose his job over the affair, Bossi said: "Absolutely not. It's a banana skin. It's silly but it's nothing very serious."
Tremonti, who has pledged to crack down on widespread tax evasion which has hampered efforts to cut Italy's vast public debt, paid 1,000 euros (${esc.dollar}1,436) a week in cash for the flat, his former aide Marco Milanese told judges in Naples this week.
Cash payments for large transactions including doctors' and tradesman's bills, rent and sometimes even house purchases, are common in Italy as a means of avoiding declaring income for tax.
"How many Italians can say they haven't succumbed to temptation, perhaps for small or unimportant items? Who can cast the first stone without being accused of hypocrisy?," Italy's leading daily, the Corriere della Sera said in a front-page editorial entitled "What Tremonti has not said".
"But the blame is much more serious if it is attached to people who have the institutional obligation to demand fiscal correctness, to set the rules and to punish those who do not observe them," it said.
Tremonti has not been implicated directly in the allegations directed at Milanese and he has since moved out of the flat.
But Pierluigi Bersani, head of the centre-left opposition Democratic Party, has called on him to explain himself.
Tremonti has long had a strained relationship with Prime Minister Silvio Berlusconi, but his status as a guarantor of fiscal rigour has helped shield Italy from the worst of the euro zone debt crisis.
Questions about the rent on the flat in central Rome arose from an 81-page deposition by Milanese in which he said that Tremonti made weekly cash payments from the second half of 2008.
Milanese, a member of parliament and formerly one of Tremonti's closest associates, is under investigation by Naples magistrates over allegations of corruption, which he denies.
SCANDAL
While political scandals involving accusations of bribery and favours are nothing new in Italy, public opinion has turned increasingly against a political elite perceived as out of touch with the struggles many ordinary Italians face to get by.
"One big question. That 1,000 euros a week, was it paid under the counter? Is there a receipt?" Libero, a conservative daily fiercely loyal to Berlusconi but hostile to Tremonti said on Thursday.
The Economy Minister's proximity to a widening scandal over rigged public contract tenders, with eye-catching reports of luxury yachts, expensive watches and other presents Milanese is accused of having accepted has raised alarm bells.
Naples magistrates have asked to have Milanese's parliamentary immunity lifted so that he can be arrested and questioned and they are also seeking access to mobile phone records and the contents of safe deposit boxes.
With Italy fighting to avoid being dragged into the euro zone debt crisis, the implications of the affair could have a wider impact given Tremonti's unusual status in the government.
Openly disliked by many of his colleagues because of his sometimes high-handed manner and insistence on iron budget discipline, he is nonetheless seen as crucial to retaining Italy's credibility with the financial markets.
Earlier this month, an interview in which Berlusconi made some critical remarks about Tremonti fed speculation of a government split that helped fuel a sharp selloff in Italian government bonds and bank shares.
On Thursday, the Treasury sold almost 8 billion euros of government bonds, with yields on benchmark 10 year bonds hitting 5.77 percent, the highest since February 2000.
Italy's relatively modest budget deficit and generally conservative financial system have kept it clear of any prolonged trouble but its public debt level is second only to Greece in the euro zone.
As the bloc's third largest economy, any serious threat to its stability would have unforeseeable consequences and could threaten the future of the single currency. (Editing by Jon Boyle) (${esc.dollar}1=.6963 Euro)
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