February 22, 2016 / 2:00 PM / 2 years ago

Italy's growth woes cast shadow over Renzi's anniversary

ROME (Reuters) - Italy’s public debt will fall as promised this year as long as the economy holds up, Prime Minister Matteo Renzi said on Monday, as Rome’s familiar growth and public finance problems threatened to overshadow the start of his third year in office.

Italy's Prime Minister Matteo Renzi reacts during a news conference with foreign press in Rome, Italy, February 22, 2016. REUTERS/Alessandro Bianchi

Italian gross domestic product grew less than expected in the third and fourth quarters of 2015, leaving prospects for this year looking much weaker than the government’s official forecast of 1.6 percent growth.

“If we have growth of 1.4 percent and a budget deficit of 2.4 percent then the debt will fall,” Renzi told foreign journalists at a news conference called to celebrate two years since he ousted a party rival to become prime minister.

The comment was the first time Renzi had indicated growth would be less than targeted, but even 1.4 percent would be above what most economists now expect for an economy which has been among the most sluggish in the euro zone over the past decade.

The Organisation for Economic Cooperation and Development forecast last week Italy would grow just 1 percent this year.

Despite repeated promises to bring it under control, Italy’s debt pile has risen steadily to around 133 percent of gross domestic product, the second-highest ratio in the euro zone after Greece.

Renzi, who is locked in a dispute with the European Commission over this year’s budget, said any decline in Italy’s debt would be positive even if it falls by less than would be required under tough EU rules introduced in 2012.

The Commission says Renzi’s 2016 budget, which raised previous targets for the deficit and debt, risks breaking the EU’s rules. It will issue a definitive verdict by May.

Renzi said the so-called “fiscal compact,” which was adopted in response to the euro zone debt crisis and mandates rapid fiscal consolidation for high-debt countries, risked being counter-productive.

“The fiscal compact forces you into very steep cuts but it has a depressive effect on growth,” he said.

Later on Monday, the government published a paper on its website calling for changes to euro zone fiscal rules.

“A framework designed for normal conditions of growth and inflation has proved incapable to tackle effectively the impact of very low nominal growth on potential growth and on debt dynamics,” the paper said.


Renzi said as a private citizen and centre-left politician he hoped Democrat Hillary Clinton wins this year’s U.S. election, but Italy would work “very well” with any president, including Republican Donald Trump.

He announced visits to the United States in March, Iran in April and Russia in June, and said he hoped Britain chose to remain in the EU in its June referendum, warning that London would be the biggest loser if the vote went the other way.

“If Britain leaves, the main problem will be for Britain, its businesses and its citizens ... the consequences will be worse for British citizens than for European ones,” he said.

The 41-year-old leader defended his government’s record with his usual vigour, linking last year’s modest economic recovery after a three-year recession to his reforms in areas such as the labour market and schools.

“Never in any European country have so many reforms been done in such a short time,” he said.

Reporting by Gavin Jones; Additional reporting by Steve Scherer; Editing by Mark Trevelyan

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