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Italy should ask for more room on deficit: OECD

Deputy leader of Italy's centre-left Democratic Party (PD) Enrico Letta arrives to speak to reporters at the Quirinale Palace in Rome April
Deputy leader of Italy's centre-left Democratic Party (PD) Enrico Letta arrives to speak to reporters at the Quirinale Palace in Rome April

MILAN (Reuters) - Italy is now in a position to ask the European Union to ease up on the country's deficit target, according to Pier Carlo Padoan, chief economist at the Organisation for Economic Cooperation and Development (OECD).

With budget cuts blamed for a second straight year of recession in the euro zone, the EU's top economics official Olli Rehn indicated last weekend that more flexibility on tough economic targets was needed.

The market pressure on Italy to bring down its large public debt burden has eased, with bond yields at their lowest in more than two years, and prime minister-designate Enrico Letta said on Wednesday policy had been focused too much on austerity and not enough on growth.

"Our country is near to achieving a very important objective, the end of the (EU) excessive deficit procedure that had been opened at the height of the crisis," Padoan told newspaper La Repubblica in an interview published on Thursday.

"Italy will now be in a position to join those countries that have some leeway with regards to their deficit/GDP limit."

His comments came amid growing resentment in Italy for the austerity implemented by the technocrat government led by former EU Commissioner Mario Monti, which some economists say has only amplified an existing recession.

Still, Monti's reform drive looks set to see Italy reduce its deficit to 2.9 percent of GDP this year and it hopes to be removed as soon as May from the list of EU countries with a deficit above 3 percent.

Countries subject to the so-called excessive deficit procedure for running above that ceiling must follow European Commission recommendations to rein in the public sector shortfall by set deadlines.

Padoan said the OECD, long a cheerleader for the sort of economics which have dictated Europe's largely austere response to the debt crisis, is asking Brussels to allow all euro zone countries some delay in reaching their deficit targets to take into account a prolonged economic crisis in Europe.

"Countries must pursue the budget deficit reduction, but the target needs to be stripped out of the effects of the recession. This means it needs to be calculated in structural terms," said Padoan.

Italy is expected to have a structural deficit close to balance in 2013.

Letta said on Wednesday the European Union was "too focused on austerity", and appealed to the Italian parliament to back his reform efforts, including convincing the EU to change its current policy direction.

(Reporting by Giuseppe Fonte and Lisa Jucca; editing by Patrick Graham)

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