Italy's production sector is facing one of its worst everproduction crises:

State funding for local films has halted for over six monthsand the government is now threatening to cut over 20% out of its entertainmentfund, leaving the cinema industry with a paltry $19m per year.

A number of local, auteur-driven productions which had beengreenlit for state funding have been put on hold for months. Producers such asTilde Corsi, whose credits include Ferzan Ozpetek's Facing Windows and his upcoming film, Cuore Sacro, say the situation is so bad they are only able toproduce films that can be entirely financed through the market.

However, established Italian producers with deep pocketshave been able to continue developing local productions and international co-productions- like Elda Ferri, who is producing Roberto Benigni's next project, The Tiger And The Snow, which will starJean Reno.

Domenico Procacci's Fandango currently has Daniele Vicari'sL'Orizzonte degli Eventi in production. The film is backed by Medusa, theproduction and distribution company owned by Silvio Berlusconi's Fininvest,which, ironically, recently joined Fandango and other leading producers inwriting an open letter to the prime minister to complain about the statefunding situation.

Rai Cinema and Rodeo Drive are backing Alessandro D'Alatri'snew film, La Febbre, a follow-up tohis commercial hit, Casomai.

Procacci is also in pre-production on Emanuele Crialese'smuch-awaited follow-up to Respiro.The Roman director's ambitious Euros 8m new project, entitled The Golden Gate, is co-produced byFrance's Arte Cinema and Memento Films, and will focus on the sea voyage andarrival of Italian immigrants in New York's Ellis Island in 1900. It will starCharlotte Gainsbourg.

Paradoxically, despite the tough conditions Italianproducers are faced with at home, a rising number of foreign directors arelooking to the Italian market to finance their films.

John Boorman, who will head the jury at the upcoming VeniceFilm Festival, is lining up a $20m-$25m Roman epic entitled Memoirs Of Hadrian, for Rai Cinema. Theproject, backed by Istituto Luce, will also involve international partners andis expected to start shooting before the end of the year in Morocco.

Istituto Luce is beefing up its English-language productionslate with cult New York filmmaker Abel Ferrara's Go Go Tales. Istituto Luce has set up the project up as aFrench-UK-Italian co-production.

Istituto Luce is also backing The Shadow Dancer with Harvey Keitel and Giancarlo Giannini, whichis directed by Brad Mirman.