August 12, 2012 / 1:07 PM / 5 years ago

Finance Minister says Italy to overshoot deficit goal: paper

3 Min Read

ROME (Reuters) - Finance Minister Vittorio Grilli said Italy's government would overshoot its 2012 deficit goal because of worse-than-expected growth but planned no extra budget cuts because Italy was on target to meet its EU obligations, a newspaper reported.

"We know there will be a worsening of the nominal deficit," Grilli told Rome's la Repubblica in an article published on Sunday. "Nonetheless, our compass remains the structural deficit, and on that we are and we will be perfectly in line."

Italy plans to post a structural, or growth-adjusted, budget surplus in 2013, which is what European Union authorities have asked the country to do.

Its nominal deficit targets are 1.7 percent of gross domestic product this year, 0.5 percent in 2013, and 0.1 percent in 2014.

Last week data showed that Italy, which has had the euro zone's most sluggish economy for more than a decade, slipped further into recession in the second quarter.

Employers' lobby Confindustria forecast the economy would contract by more than 2.4 percent this year, a much gloomier view than the government's official projection of -1.2 percent.

Investors have become increasingly concerned about Italy's ability to reduce its public debt of around 123 percent of output. Its borrowing costs are currently bordering levels that are seen as unsustainable over the long run.

In the same interview, Grilli said he welcomed the European Central Bank's plans, announced on August 2, to come up with ways to lower bond yields to accurately depict the bank's monetary policy.

Grilli urged the central bank to present the details of its plans soon and repeated Prime Minister Mario Monti's previous denial, also from August 2, that Italy intended to apply for aid in bringing down bond yields.

"The re-balancing measures announced by the ECB must be accelerated," Grilli said. "We believe that the tools the ECB will bring to the table, when operative, can substantially relieve tensions", between German Bunds and other euro zone benchmark bonds.

If Italy does ask the ECB to intervene on the markets on its behalf, the country already meets all the conditions necessary for assistance by adhering to the EU growth and stability pact and the recently passed fiscal compact, Grilli said.

"There are no additional conditionalities," he added.

ECB President Mario Draghi said that countries seeking the bank's help would need to sign a memorandum of understanding.

Grill said that when the government gets back to work after a brief summer recess, a debt reduction plan will be introduced that is composed mainly of state real estate sales, spending cuts and prudent budget management.

"When this recession is over, (the debt reduction plan) would permit a lowering in the debt-to-GDP ratio of 20 percentage points in five years," he said.

Reporting by Steve Scherer, editing by Jane Baird

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