* Italy’s Monti says divisions are greatest risk facing Europe
* Suggests stripping public investment from deficit calculations
* Says Italy recession no reason for more austerity measures
STRASBOURG, Feb 15 (Reuters) - Italian Prime Minister Mario Monti warned on Wednesday that the euro zone debt crisis was fuelling dangerous divisions and resentment within the currency bloc and said it was wrong to try to divide member states into “goodies and baddies”.
Addressing the European Parliament in Strasbourg, Monti said that while southern, so-called peripheral countries were widely blamed for the debt crisis, France and Germany also carried major responsibility for watering down the bloc’s fiscal rules.
“The euro zone crisis has given rise to too many resentments and re-created too many stereotypes, it has divided Europe into central countries and peripheral ones; all these categories must be decisively rejected,” he said.
Monti said France and Germany originated the crisis of the euro zone’s Stability Pact in 2003 when, with the support of Italy, they effectively dismantled the rules to forgive their own lack of fiscal discipline.
“There are no goodies and baddies in the European Union” he said, rejecting the popular division of the euro zone into virtuous northern countries and profligate southern ones such as Greece, which is battling to stave off a default.
“We all have to feel commonly responsible both for what has been done in the past and above all in the construction of the future.”
Frequently interrupted by applause, Monti said that while Europe was right to strengthen fiscal discipline, this should be accompanied by a greater emphasis on measures to help growth and improve the workings of the single European market.
He reiterated his support for commonly backed euro zone bonds, which are currently rejected by Germany, and said Europe should at some stage consider excluding money spent on public investments from calculations of budget deficits.
Monti said it was positive that budget performances were now adjusted for the effects of the business cycle, giving some breathing space for countries hit by recession such as Italy.
Data on Wednesday showed the Italian economy contracted by 0.7 percent at the end of last year, throwing it into a recession expected to last for much of this year.
Monti said the worse-than-expected economic weakness was not a reason for Italy to adopt more austerity measures on top of the three deficit cutting packages adopted last year.
Recent declines in borrowing costs were not accounted for in the government’s most recent public finance estimates which aim for a balanced budget in 2013, Monti said, and this would help compensate for the decline in output.
Italy officially forecasts a contraction of gross domestic product of 0.4 percent this year, a projection now considered unrealistic by all independent forecasters.
The International Monetary Fund sees a GDP contraction of 2.2 percent, while employers’ lobby Confindustria forecasts a fall of 1.6 percent and the Bank of Italy expects a decline of between 1.2 percent and 1.5 percent.