EU official snubs Italian call for more wiggle room on budget

LONDON/BRUSSELS Mon May 19, 2014 4:08pm BST

Italian Prime Minister Matteo Renzi gestures during a meeting in Turin, April 12, 2014.   REUTERS/Giorgio Perottino

Italian Prime Minister Matteo Renzi gestures during a meeting in Turin, April 12, 2014.

Credit: Reuters/Giorgio Perottino

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LONDON/BRUSSELS (Reuters) - Italy will fail in its call to relax the euro zone's rules on national debt and deficits and should focus on reforming its economy instead, a senior European Commission official said on Monday.

Italy plans to propose easing the euro zone's fiscal rules in the autumn, as it tries to get its economy off the floor.

"The Stability and Growth Pact is not stupid," the official said. "It allows flexibility. I know some people have said the exact opposite but I disagree with that."

The pact requires governments to keep their budget deficits below 3 percent of gross domestic product and their debt below 60 percent of GDP. Several countries have protested that the rules are too strict.

France's refusal to accept disciplinary action for missing its budget deficit target in 2003 led to a softening of budget rules. That has been cited as a factor in the euro zone's sovereign debt crisis, which began in 2009.

The government of new Italian Prime Minister Matteo Renzi has suggested the rules be made more flexible for countries that commit to reforms, although he has been vague about specifics. Suggestions by some Italian officials and politicians have included giving more time to countries to cut their deficits or excluding investment spending from deficit calculations.

"It's not going to happen. Impossible. The flexibility is already sufficient," the Commission official said when asked about the possibility of not including some kinds of spending in public deficits.

The official, who was speaking to reporters at a briefing on EU issues in London, said Italy should now focus on bringing down its structural deficit - the part which is not affected by swings in the economy.

Renzi last week ruled out taking new cost-cutting measures after the country's economy contracted unexpectedly in the first three months of the year.

Italy's deficit is below the EU's ceiling, but its debt is much higher than permitted.

Italy is not alone. The majority of the euro zone's 18 countries have either their deficit and debts, or both, above the EU limits, due to a lack of reforms over the years and the impact of the bloc's debt crisis.

The EU's executive Commission is due to issue recommendations on the fiscal plans of Italy and the rest of the European Union on June 2.

(Writing by by Martin Santa in Brussels, editing by William Schomberg in London, Editing by Larry King)

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