UPDATE 2-Italy must wait to see if reform efforts affect budget goals -minister

Mon Mar 10, 2014 5:07pm EDT

Related Topics

* Padoan says impact on budget goals from reform drive still unclear

* Says closer to EU Commission growth forecast than last government (Adds comment on growth)

By Francesco Guarascio

BRUSSELS, March 10 (Reuters) - Italy will have to wait to judge whether planned structural reforms will affect its ability to meet strict European Union budget limits, Economy Minister Pier Carlo Padoan said on Monday.

Italy, struggling to recover from its worst economic slump since World War Two, has kept to EU rules limiting budget deficits to 3.0 percent of gross domestic product for the past two years, but its public debt is the second highest in the euro zone behind Greece at almost 133 percent of GDP.

Speaking after a meeting with euro zone finance ministers in Brussels, Padoan said it was generally accepted that structural reform measures take time to bear fruit and can pose a temporary burden on public finances.

"These are policy measures which produce growing effects as time passes. In the meanwhile they can have implications for public finances in the sense that they can temporarily weigh on public finances," he said.

He said it would take "some years, not many but more than one", to reach a full assessment of the impact of reforms.

"Naturally, there could be implications for the profile of public finances which would of course be clearly linked to the structural measures. This is the principle. Whether this leads to respecting the limits with greater or lesser precision is something we don't know. We will see."

Padoan made no comment on whether the government would ask for any extra budget flexibility to cope with the added costs of structural reforms on its already badly strained finances.

"I haven't said we'll ask, I've said we'll do things and then we will assess the implications as the indicators tell us whether the measures have been successful, what the macroeconomic situation is and so on," he said.

Before taking office, new Prime Minister Matteo Renzi stated several times that Italy could seek more leeway on deficit limits to make room for spending on investment and measures to boost growth.

Last week, the European Commission warned Italy, which saw its economy contract by 1.9 percent last year, that it would have to take decisive action to correct its very high debt level and weak competitiveness.

Padoan said the government would give its response once the Commission presented its formal report.

But he indicated that he had a less optimistic view on prospects for the economy than the last government, which forecast growth of 1.1 percent in 2014 and said he was closer to the Commission's forecast of 0.6 percent growth.

"Forecasts naturally have a role for purposes of statistics. The numbers which we have at the moment are probably closer to the Commission's than they were in the past," he said. (Writing by James Mackenzie; Editing by Mark Heinrich)

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