Italy wants room for growth, Merkel seems to bend

Hopes rising that Germany willing to relax on stimulus spending

(ANSA) - Rome, June 23 - Hope was growing Monday in Italy that some room for stimulus spending may be created within European Union budget rules when leaders meet later this week, after German Chancellor Angela Merkel signaled an opening.

Leaders from across the EU will meet on Thursday and Friday, first in the Belgian city of Ypres and later in Brussels where they will not only nominate a new president for the European Commission but also consider the future of eurozone fiscal rules. The summit may mark a "turning point" from a sustained emphasis on austerity to policies more oriented towards encouraging growth, Foreign Minister Federica Mogherini said Monday.

She spoke after German Chancellor Angela Merkel signaled an opening towards growth-stoking spending, an idea Mogherini said had been promoted by Italian Premier Matteo Renzi and Economy Minister Pier Carlo Padoan. A spokesman for Merkel said that she is "open" to greater flexibility within the EU's stability pact, so long as the basic rules are obeyed. Merkel also believes that the rules permit consideration for "negative economic cycles" as well as investments for structural reforms, added spokesman Steffan Seibert.

This would allow more flexibility into the pact, which basically requires member States to maintain their budget deficits within 3% of their total gross domestic product (GDP). "But it must be observed, credibility of the pact comes from compliance with the rules," said Seibert. Merkel had previously said that the pact should not be changed, but Renzi and other countries, including France, have argued that flexibility could be found inside the rules for such measures as increased investment spending to stimulate economic growth. Earlier in the day, Italy called on the European Union to "encourage structural reforms on the national level...because they are the principal engine of growth". In a letter to European Council President Herman Van Rompuy seen by ANSA, the Italian government said such reforms were especially effective when "contemporaneous with other countries".

Italy has been working closely with Van Rompuy preparing for this summit, as it will hold the six-month rotating presidency of the EU beginning next month. The issues of jobs and growth "should be put at the top of the agenda" for the EU leaders summit, according to Padoan and Henk Kamp, minister for economic affairs for the Netherlands after the pair met Monday in Rome.

Italy in particular has been struggling hard to pull itself out of its worst recession since the Second World War. Renzi's government has come up with a range of measures and reforms to try to help households and businesses to get back on their feet and to kick-start the economy.