EU may not allow Italy to deviate says Bank of Italy -update

(ANSA) - Rome, October 13 - European Union bodies may not allow Italy to deviate from EU-mandated budgetary limits, the Bank of Italy said Monday. "Admissibility of deviation (from EU fiscal limits) is not a done deal" and it will be up to the EP, the European Commission, and the European Council to interpret the rules, the central bank said in a statement. Italy recently said it would balance its budget in structural terms by 2017 and not 2016 as stated earlier, thus violating its EU budget commitments.
    "There are margins for flexibility that can be exploited with some care, but there must not be steps back" in balancing the public budget, Bank of Italy Vice Chairman Luigi Signorini told the Lower House.
    "Slowing down the balancing process can help avert a recessive spiral, but can only be justified if budget margins are used to restart growth".
    Italy should reduce taxes and cut public spending to restore investor and family confidence, Signorini added. "It is (also) necessary to proceed with structural interventions, reduce waste and make reforms a perceptible reality," he said.
    However, the government should be vigilant because it may not have the money to cover social welfare measures contained in its Jobs Act labor reform bill, he added.
    As well, the Bank of Italy said updated projections in the government's economic blueprint might have to be revised downwards. "National GDP may have dropped further in Q3," the Bank of Italy said. "Investments may not pick up in the short term, and business confidence continues to point to persistent weakness," the bank said. The government should keep in mind that unfavorable international developments and "lasting weakness in the real estate and labor markets" could also slow down Italy's economic recovery, according to the Bank of Italy.