World Cup win gives Italy confidence to reassure EU

Italy, buoyed by a World Cup win that could give its economy some bounce, sought to reassure European finance ministers yesterday that it could cut a public deficit which has topped the euro zone's permitted limit.

It appeared to convince many of them of its good intentions. Spanish finance minister Pedro Solbes said Rome's plans to cut spending were "courageous" and Belgian counterpart Didier Reynders said that he hoped Italy could do as well as in soccer.

"Today we will congratulate Italy on the football and I hope it will be possible to congratulate Italy in the future about the budget," Mr Reynders said.

Italian economy minister Tommaso Padoa-Schioppa met European monetary affairs commissioner Joaquin Almunia before the Brussels gathering of euro-zone finance ministers to explain his plan to cut an overshoot blamed on the previous conservative government.

Italian treasury undersecretary Mario Lettieri said the Italian World Cup final win could lift confidence and perhaps raise economic growth by as much as half a percentage point.

That would be significant in a country where gross domestic product is officially forecast to rise just 1.5 per cent this year - less than the 2.1 per cent predicted for the euro zone as a whole - after flirting with recession at the start of 2005.

Many economists dismissed Mr Lettieri's remarks as optimistic, although some said there could be a marginal boost and it might be easier for the government to deliver on a deregulation programme or painful reforms if voters were in a happier mood.

The euro-zone ministers were to review the deficits of both Italy and Germany at the regular meeting, though diplomats said there was less worry about Germany.

They were also expected to review the economic outlook in general and debate the prospect of accelerating interest rate increases by the European Central Bank.

With the euro-zone economy growing healthily, ECB chief Jean-Claude Trichet gave financial markets the impression that the next rate rise to head off inflation could come as soon as August 3rd, earlier than foreseen.

Mr Almunia told reporters he hoped Rome would act on its promises and put some of its five-year plan to overhaul public finances into the 2007 budget to be presented in September.

Euro group chairman, Luxembourg's Jean-Claude Juncker said he liked what Italy was saying but kept up the pressure for delivery.

Germany, which has exceeded the EU's budget deficit ceiling of 3 per cent of GDP every year since 2002, has said its finances are looking better and it now expects a punishment procedure started by the European Commission against Berlin to be ditched.

Finance minister Peer Steinbrueck was not at yesterday's Eurogroup meeting, with finance secretary of state Thomas Mirow sent in his place.