UPDATE 2-Italy's Renzi, ECB's Draghi hold "secret" meeting as economy slides

Wed Aug 13, 2014 2:25pm EDT

Related Topics

* Opposition attacks "secret meeting" at holiday house

* ECB declines to comment on meeting

* Pressure grows on Renzi to act as recession returns (Adds reaction from opposition, detail on public debt, background)

By Ilaria Polleschi

MILAN, Aug 13 (Reuters) - Italian Prime Minister Matteo Renzi confirmed on Wednesday that he met European Central Bank President Mario Draghi this week, just days after Draghi urged faster action to overhaul Italy's economy.

"Yes, I saw Draghi yesterday, I often see him," Renzi told reporters in Milan who questioned him after a newspaper in the Umbria region, where Draghi has a holiday house, reported the meeting. But he offered no further comment.

With Italy now officially back in recession after a brief remission at the end of last year, pressure for reform has increased on Renzi, who has championed a greater emphasis on economic growth in resolving the euro zone's debt crisis.

At the ECB's monthly news conference last Thursday, Draghi said a lack of structural reforms was holding Italy back and hampering a return to growth, prompting widespread media speculation that European authorities could push to impose some form of special administration on Italy.

While Renzi has promised Italy will meet its European Union budget commitments, there have been growing questions about whether he will be forced to find additional resources from an already tightly squeezed budget to do so.

The local Corriere dell'Umbria daily reported on Wednesday that Renzi met Draghi in Citta della Pieve, a small town in Umbria, north of Rome.

It said Renzi arrived on Tuesday morning, his government helicopter landing at a specially cleared municipal sports field and remaining around two-and-a-half hours.

Renzi's spokesman declined to comment on the meeting. An ECB spokesman also declined to comment.

POLITICALLY SENSITIVE

The meeting, which was not on the prime minister's published agenda and which was not confirmed by officials until Renzi acknowledged it himself, drew sharp criticism from the centre-right opposition which said Renzi owed a fuller explanation.

"Is it normal that the prime minister of a democratic country takes a helicopter and goes to meet the president of the ECB in secret?" Renato Brunetta, the lower house floor leader for Silvio Berlusconi's Forza Italia party said in a statement. "And what did they talk about? And if it hadn't been uncovered, would it have remained a secret?"

Draghi's pledge in 2012 that the ECB would do "whatever it takes" to save the euro has been widely seen as the key to ending the severest phase of the euro zone debt crisis.

But he is frequently criticised by opposition parties in Italy who say he has been an advocate of austerity policies which have deepened the economy's problems.

In an interview with the Financial Times on Monday, Renzi dismissed speculation that he could be forced to accept the kind of outside intervention seen in other crisis-hit countries like Greece. He said he agreed with Draghi's call for reforms but that they would be carried out on his own terms.

Having come to office in February pledging swift reforms to an economy which has shrunk by some 9 percent since 2007, he has faced growing criticism for not doing enough to cut Italy's record unemployment and its towering public debt pile, which the Bank of Italy said totalled 2.168 billion euros.

Much of the government's energy has been taken up in a parliamentary battle over constitutional reforms to curtail the powers of the Senate and regional governments, a measure intended to speed up decision-making and give the government more power to effect change.

Underlining the scale of the reform challenge, a row has broken out in the ruling coalition over Article 18 of the labour code, a measure intended to protect workers in larger companies against unfair dismissal which critics see as a symbol of Italy's labour market rigidities.

Centre-right coalition members want Article 18 scrapped, a demand rejected by their centre-left partners and the unions, while Renzi himself says the issue has to be dealt with as part of a wider reform of labour market rules.

(1 US dollar = 0.7476 euro) (Additional reporting by Paul Carrel; Writing by James Mackenzie, editing by Isla Binnie/Ruth Pitchford)

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