FLORENCE, Italy (Reuters) - Italy will propose offering European Union member states that undertake structural reform more flexibility on budget rules when Rome assumes the presidency of the 28-member bloc later this year, Prime Minister Matteo Renzi said on Friday.
Renzi has trod a careful line on budget policy since taking office in February, insisting that Italy will meet all its commitments on EU deficit rules while criticizing the heavy focus on fiscal policy that has characterized the bloc's response to the crisis.
He has embarked on an ambitious program of structural reforms which he believes will do more to restore Italy's battered economy, create jobs and ultimately ease the strain on public finances than further budget tightening alone.
He said the October EU summit, expected to focus on the EU's economic agenda could see concrete proposals for change.
"We respect the rules and it's precisely because we respect them that we can say that a lot of these rules need to be changed," he said at a conference organized by the European University Institute in Florence.
"At the European Council meeting in October we'll try to propose an initiative which goes in this direction: more incentives for those which undertake decisive reforms," he said.
As EU president from July, Rome will be able to exert some influence on the policy setting agenda but it will still need agreement from its partners, many of whom are wary that backsliding on its budget commitments could weaken efforts to keep its 2 trillion euro public debt under control.
Economy Ministry Undersecretary Sandro Gozi said the proposals would focus on easing the budget constraints in the European treaties. "Anyone who does reforms should get more room to use the flexibility that's in the treaties," he said.
Italy's budget deficit is expected to come in at 2.6 percent of gross domestic product this year, well within the EU's 3 percent ceiling while GDP is expected to grow by a mere 0.6 percent, according to European Commission forecasts this week.
But after two years of deep recession, its public debt is expected to reach 133.7 percent of GDP this year, second only to Greece.
Renzi said the European parliamentary elections on May 25 would be an opportunity to strike a middle course between "cold technocratic language" and anti-European populism.
"Growth and jobs are the central values for Europe, not just budget rigor and austerity," he said. "It's right to save the states, it's good to save the banks, we need to save the Italian and European middle classes and families."
(Reporting By James Mackenzie and Giselda Vagnoni)