Draghi calls for 'ambition' as Italy deflation confirmed

(ANSA) - Rome, September 12 - Calls by European Central Bank President Mario Draghi for "ambitious" reforms to boost growth coincided Friday with confirmation that Italian inflation fell below zero in August, triggering concerns of possible deflation for the first time since 1959. Measures that the ECB is taking to encourage growth will have more impact and yield greater "dividends" if they are matched by "ambitious" structural reforms by government, Draghi told a meeting of eurozone finance ministers in Milan. In turn, the 18-member eurozone ministers agreed that a solid step would be reducing taxes on labour, describing that as a "clear political priority" and setting principles for achieving that goal.
    Such reforms are seen as necessary to boosting the stagnant eurozone economy that showed no growth in the second quarter. Draghi also urged governments to do more to foster public and private investment, a point accepted by German Finance Minister Wolfgang Schaeuble.
    "We are in an economic environment that requires a strengthening of investment in Europe, Germany included," Schaeuble said.
    But sustainable growth also requires strict control of spending and fiscal policies, said Schaeuble, a strong proponent of adherence to the regulations in the European Union's Stability and Growth Pact.
    Draghi agreed that the pact is "an anchor of trust" and told the ministers the European Union's Stability and Growth "should not be unraveled".
    Ministers must first respect the rules of the stability pact, reduce debt and deficits, before they expect to make use of flexibility in the rules, said Eurogroup President Jeroen Dijsselbloem. Pier Carlo Padoan, Italy's economy minister, said that focusing too intently on deficit limits is not productive when growth is so weak and unemployment unacceptably high.
    For Italy, holding down its deficit "was a goal compatible with a different macroeconomic picture".
    Separately, Italy's Spending Review Commissioner Carlo Cottarelli told a business audience in Perugia that there was sufficient room in the stability pact to allow member States some wiggle room in their financial plans.
    The government of Premier Matteo Renzi has been urging the EU to exclude some types of spending, especially big-ticket, long-term infrastructure investments, from its measures of whether countries are following its finance rules. "I think there is room for flexibility on the margins (of the European stability pact) that can be exploited," Cottarelli said.
    Italy, now in its third recession since 2008, is struggling to increase investment and boost growth while remaining within a 3% deficit-to-GDP ratio established by the EU.
    But the country has faced a steady stream of negative news.
    National statistical agency Istat confirmed Friday that the annual inflation rate in August of negative 0.1% has not been seen since September 1959 when, in stark contrast to today, the country was roaring into a long boom.
    It also reported that Italian industrial output fell in July to its lowest level since April 2009.
    Meanwhile, the Bank of Italy said the country's public debt hit a new record of 2.168 trillion euros in July, 0.2 billion higher than June.