March 7, 2016 / 11:57 PM / 3 years ago

UPDATE 1-Italy risks breaking EU fiscal rules even with all leeway granted- Eurogroup

(Adds Renzi’s quotes)

By Francesco Guarascio

BRUSSELS, March 7 (Reuters) - Italy’s 2016 budget is at risk of breaking European Union fiscal rules even if Rome is granted all possible fiscal leeway by the European Commission, euro zone finance ministers said in a joint statement on Monday.

Italy has the second largest debt in the European Union after Greece and is running an expansionary budget in 2016 in a bid to revive sluggish growth.

This puts Rome at odds with EU fiscal rules which require significant cuts in public debt for countries with excessive indebtedness and corrections to reduce the structural deficit.

Stretching the rules, Rome asked for nearly 10 billion euros of further deficit spending in 2016 and urged the Commission, which monitors euro zone national budget plans, to grant it flexibility allowed by the rules.

The Commission will decide in May on Italy’s request.

But euro zone finance ministers made clear in a joint statement on Monday that “even if the maximum potential additional flexibility is granted, the risk of a significant deviation (from EU budget rules) may remain.”

To be in line with EU rules, Italy may be forced to find additional revenue to plug its fiscal gap this year, but Italian Prime Minister Matteo Renzi rejected such concerns.

“Italy’s finances are completely safe. There will be no need for more revenues. There is nothing to be afraid of,” Renzi told reporters in the early hours of Tuesday.

Finance ministers, gathered in Brussels for a regular monthly meeting, also raised concerns about Italy’s debt which is to decline this year, but not by as much as the rules stipulate.

Italy’s debt is projected at 132.4 percent of Gross Domestic Product in the latest economic forecasts of the EU Commission.

If a euro zone country does not respect EU fiscal rules, it can be subject to tighter monitoring procedures which are likely to affect its financing costs. EU financial sanctions are also foreseen for countries who repeatedly breach the rules, although they have never been applied. (Reporting by Francesco Guarascio)

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