Over 2 Dozen Arrested in Latest Round of Italy Scandal : Corruption: A quarter of the Parliament is under investigation in the burgeoning probe of bribe-taking.

ROME —  In a new anti-corruption blitz, police arrested more than two dozen public officials and business leaders Wednesday in connection with a kickback scandal that is undermining Italy’s national economy and political foundations.

New arrests in Milan and Rome, as well as in the southern city of Brindisi, highlighted the nationwide scope of the corruption in which business people, particularly building contractors, made huge payoffs to political parties in exchange for public works projects.

Parliament, a quarter of whose 630 members have been formally notified that they are under investigation in the scandal, is weighing legislation that would reform the law on party financing. The legislation--protested by opposition parties--would decriminalize future violations, making them civil offenses payable by fines.

As proposed by the Justice Ministry, public officials and private citizens who confess to past transgressions and make restitution could get suspended sentences. Guilty politicians would be banned from future public office. Debate on the controversial attempt to contain a widening and destabilizing scandal will began at week’s end.

Meantime, magistrates continue to cut a broad swath through Italy’s political and entrepreneurial establishment. An official of the Public Works Ministry and a dozen employees of the state road authority were among those jailed in Milan on Wednesday, and two Socialist Party officials were victims of a garbage scandal in Brindisi in the south.

Yet another city council was decimated: At Frignano, in the Naples area, 10 council members were accused of soliciting a $35,000 payoff in 1991 for construction of a sports complex.

Like leaders of large contracting companies, city government officials have been prominent among the hundreds of victims of the scandal Italians call Tangentopoli (Bribesgate). As a result, a swelling number of Italian cities no longer have functioning municipal governments, including the four largest: Rome, Turin, Naples and Milan, where the systematic and systemic payoffs first surfaced one year ago.

As political heads continue to roll, Italians are also wrestling with the scandal’s economic consequences. Construction nationwide, both private and public, has been severely curtailed by what Riccardo Pisa, president of the national builders association, called “the signature strike.” Skittish builders cannot or will not sign contracts with public officials who are in jail, under suspicion or are themselves afraid to make decisions.

Pisa estimates that public construction contracts dropped by 35% in the last nine months of 1992 because of the scandal and have all but dried up so far this year--this in a country gripped by full-blown recession and fast-rising unemployment. To add insult to injury, in the past week, international credit agencies have downgraded the rating of Italy’s foreign debt.

By now, no major political party has escaped the scrutiny of investigating magistrates, who, under Italian law, direct and conduct investigations that are carried out by the police in the United States.

The Socialist Party, whose historic stronghold has been powerhouse Milan, has suffered worst so far. Bettino Craxi, the party leader and former prime minister, is the subject of almost a dozen different investigations, and Parliament is deciding whether to lift his immunity as requested by Milan magistrates. In a 135-page defense submitted to Parliament this week, Craxi denies the allegations and claims they are part of a political vendetta against him.

Former Prime Minister Ciriaco De Mita, a leader of the dominant Christian Democratic Party, resigned his post as head of a parliamentary commission seeking electoral reform after his builder-brother was implicated Tuesday in payoff scandals involving post-earthquake reconstruction around Naples.

The commission’s job is to produce legislation that would replace Italy’s proportional electoral system with direct elections, thus ending half a century of political fragmentation and weak coalition governments. If Parliament is unable to legislate reform, the question will be decided in a national referendum on April 18 by an electorate loudly and frankly exasperated by the deep venality and insistent abuse of power among Italian politicians.