Italy can breach EU deficit limits if it reforms, Renzi says

[January 02, 2014]  ROME (Reuters) — Italy can negotiate a relaxation of European Union deficit limits if it shows it is serious about effective reforms to its economy and political system, Matteo Renzi, the new head of the center-left Democratic Party said in an interview on Thursday.

Renzi is not in the government but as head of the biggest party in Prime Minister Enrico Letta's left-right coalition, he will have a decisive role to play in shaping the political agenda and has already called for quicker action on reforms.

"If there's a leadership with a vision, I can't see a problem with passing the deficit ceiling, although we'd have to have a battle to change the rules," he told the daily Fatto Quotidiano.

Despite its worst recession since World War Two, Italy has managed to bring its deficit within the EU's limit of 3 percent of gross domestic product, at the cost of deep public resentment at the tax hikes and other austerity measures required to meet the target.

Renzi, the 38-year-old mayor of Florence who won a sweeping victory in his party primary last month to assume leadership of the center-left, said the 3 percent deficit ceiling was a mark of the lack of vision which had pushed Europe into crisis.

"It's obvious you can exceed it; it's an anachronistic limit which dates back 20 years," he said.

He said Italy had to show it was ready to reform its constitution, to cut the bloated cost of its political system, and pass a Jobs Act capable of attracting international investors along with other reforms.

If it did so, "Europe will applaud, even if you breach the 3 percent. Europe needs a living Italy."

Renzi's comments contrast in tone with the position of Letta, who has said repeatedly that Italy's budget discipline had ensured it regained international credibility and lowered its borrowing costs.

However he "categorically" rejected the euro skepticism of the anti-establishment 5-Star Movement, whose leader Beppe Grillo has proposed a referendum on leaving the euro.

"Leaving the euro would have decidedly negative repercussions for Italians, it would send interest rates shooting up, it would make it more difficult for companies to work and it would weaken family purchasing power even more," he said. "I'm open to a discussion but I disagree with it in substance."

(Reporting by James Mackenzie; editing by Angus MacSwan)

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