Renzi says Italy reforms will point way for EU

Move from austerity to growth necessary, says Italian premier

(ANSA) - Rome, March 21 - As Italy continues getting its own fiscal house in order, it will be able to help lead the rest of Europe away from an obsession with austerity towards policies designed to boost growth, Premier Matteo Renzi said Friday.

As he left his maiden appearance at a European Union summit, Renzi - leader of the centre-left Democratic Party (PD) who became premier last month - sounded confident that he had won support from other EU leaders for his domestic reforms.

Those, he suggested, may also prove to be something of a model for the rest of Europe, particularly as Italy prepares for its duty presidency of the 28-member EU in the second half of this year. Indeed, "the most important topic discussed" at the EU summit in Brussels that closed Friday concerned "reforms and time lines for reforms," said Renzi. "Italy can get there with a lot to do and say, only if first we're able to put in place this gigantic work on reforms".

Last week, the fledgling premier unveiled a broad reform plan that includes cuts to income taxes for low-income Italians by 10 billion euros, slicing 2.4 billion euros from business levies, investing 1.74 billion euros in social housing programs, spending 3.5 billion euros on schools, and repayment of 68 billion euros in outstanding bills for government services by July. At the same time Renzi, 39, has maintained that he will keep the books within the EU-mandated limit of a 3% deficit-to-GDP level by financing his plans through cuts to existing spending plans rather than running up bills.

Still, he has suggested that such limits are outdated, courting concerns from some senior EU officials who worried that Renzi was considering breaching those limits. Renzi also warned that while Italy's deficit for 2014 will remain under the 3% limit, it would not likely drop as low as the 2.6% that was previously forecast. That initially triggered concerns for European Commission President José Manuel Barroso, who sounded less worried after meeting Renzi on Thursday.

"The Italian premier has committed himself to a very ambitious programme of reforms while at the same time saying he would respect the commitments made at the European level," said Barroso. "I think this is fundamental for confidence in Italy and the whole EU".

Italy has been under considerable pressure from the European Commission, which has complained that Italy's 2014 budget was insufficient to correct the country's "excessive macroeconomic imbalances", including high debt and low competitiveness.

The EC has warned that it would be monitoring Italy's macroeconomic imbalances and efforts by the eurozone's third-largest economy to reform these, as it keeps a watchful eye on Italy's huge debt to GDP ratio of about 133%. Meanwhile, Renzi has said that significant labour market reforms in Italy are in the works and are essential to cope with a jobless rate of almost 13% in Italy, including about 42.4% youth unemployment.

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. At the same time, Spending Review Commissioner Carlo Cottarelli, a former International Monetary Fund (IMF) official, has been devising a list of potential spending programs where as much as five billion euros could be in the last eight months of 2014 for lower-priority areas, to free money for higher priorities, Renzi has said.

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

Before the EU summit, Renzi also took the time to run his plans by the German government, often seen as one of the strictest EU members in terms of enforcing debt and deficit limits. On Monday, he won a powerful vote of confidence from German Chancellor Angela Merkel, who praised Renzi's "courage" in making significant structural changes in Italy's economy.

During the first bilateral meeting between the two Merkel, the head of Europe's largest economy, said she looked at "all aspects" of Italy's reforms, adding she was impressed and wished Renzi "a lot of luck". "It is clear to me that Italy is paying attention to (fiscal) stability as well as to growth and employment," she added.