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Italy to respect 'outdated' budget rules, says Renzi

With EU looking on, premier signals deficit forecast may rise

19 March, 20:01
Italy to respect 'outdated' budget rules, says Renzi (By Christopher Livesay) (ANSA) - Rome, March 19 - Premier Matteo Renzi told parliament on Wednesday the government would honor the 3% limit on Italy's deficit-to-GDP ratio, but called the European Union's threshold "outdated", and said the Italy's deficit forecast for 2014 could rise. Speaking from the floor of the Lower House, Renzi said that tens of billions of euros in combined income-tax cuts, infrastructure spending and debt repayments planned for this year could raise this year's deficit-to-GDP ratio forecast "from 2.6% to 3%". Aiming to jolt the sclerotic economy out of a slow recovery from Italy's worst recession since World War II, Renzi plans to cut income taxes by 10 billion euros, invest 1.74 billion euros in social housing programs, spend 3.5 billion euros on schools and repay 68 billion euros in outstanding bills, among other things. Recent reports said Renzi had planned to broach the sensitive issue of deficit limits when he met Monday with German Chancellor Angela Merkel at their first bilateral since he was sworn in as premier last month. At the meeting, Merkel praised Renzi's "ambitious" plans and expressed certainty in Italy's commitment to stay below the EU-enforced limit. Italy must be careful to avoid breaching it, as it did in 2009. The European Commission subsequently opened an excessive-deficit procedure against Italy, obliging it to divert public money into trying to reduce that ratio. It was taken off the procedure last year after bringing the ratio below 3%. With Italy's duty presidency of the EU arriving in July, the House was particularly interested in hearing Renzi's ideas regarding Italy's role in the 28-member union. He told MPs Italy is "ready to do its part" within the EU by offering reforms to national institutions and the Constitution. "We have offered a package of reforms to the Constitution and to our institutions that have impressed our European partners because this is a sign that Italy is ready to do its part," Renzi told the Lower House on the eve of a two-day summit of European Union leaders in Brussels.

Among the most urgent reforms are those to Italy's labour market, to deal with what Renzi called an "atrocious" level of youth unemployment that exceeds 40%.

These reforms are not an option, "this is not a debate over whether we can deal with it or not," added Renzi, who has suggested it is time to shift focus away from concerns about reducing debt to instead consider policies aimed at encouraging growth and recovery.

"This pushes parliament" to deal with labour market issues as well as numerous other economic priorities, and may include innovative approaches, said Renzi.

Spending Review Commissioner Carlo Cottarelli is devising a list to cut as much as five billion euros in the last eight months of 2014 for lower-priority areas, to free money for higher priorities, Renzi noted.

Renzi admitted that will demand hard choices in terms to where to cut, for which he will take responsibility.

Like a family budget, "if there is not enough money, it's Mom and Dad who decide what to cut and what is not (cut)," he said. He also reminded the House of his dramatic plan for tax cuts and targeted social investments, which he vowed Wednesday to implement "before July," which marks the start of Italy's six-month EU presidency. Known as a charismatic fast-talker, Renzi went on to say that Italy could become a European leader over the next two decades if it works hard enough. "We are going in Europe, conscious of the fact that we have countless limits and difficulties - but, if Italy works hard enough, it can aim to be a leader within the European Union for the next 20 years and not for six months," the premier said. But his tone was at times tough on the EU, as it has often been in his nascent premiership. He told the House that Italy gives more to the EU than it receives, and that one of the causes of Italy's worsening debt-to-GDP ratio was its big contribution to the EU's euro bailout fund. Italy's debt-to-GDP ratio of 133% is the second-biggest in the eurozone after Greece's.

In recent weeks Renzi has received praise from European and EU leaders for his planned economic reforms, but has been quick to respond that such measures were necessary not to appease Europe, but to be able to "look our children in the eye".