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'Low inflation is a brake on structural reform' says Padoan

'But reducing income, labor taxes already a structural reform'

01 April, 18:34
'Low inflation is a brake on structural reform' says Padoan (ANSA) - Athens, April 1 - Italian Finance Minister Pier Carlo Padoan on Tuesday said low eurozone inflation slows down structural adjustments in southern European countries with high debt-to-GDP ratios and lagging growth, such as Italy.

"Reducing the fiscal wedge (or the gap between employers' labour costs and workers' take-home pay) is already a structural adjustment," the minister said at the end of an Economic and Financial Affairs Council (Ecofin) meeting of EU finance ministers in the Greek capital.

Permanent tax cuts must be offset by permanent spending cuts, he added.

In February, the Organisation for Economic Cooperation and Development (OECD) urged Italy's government to reduce income taxes and cut minimum labour costs to generate growth in an economy showing timid signs of recovery after its longest postwar recession.

Italy's slow growth may have become a structural problem, added the Paris-based organisation.

The OECD recommendation broadly reflects Renzi's economic program.

In order to carry it out, Padoan must now perform a tricky balancing act in order to jump-start the economy without defaulting on Italy's EU obligations. This was made clear when Eurogroup President Jeroen Dijsselbloem on Tuesday urged Italy "to stick to the agreements and procedures and to enact reforms so that we might all become more competitive". Italy's budget commitments are set out under a European Stability and Growth Pact requiring member States to maintain budget deficit-to-GDP ratios of 3% or less.