Prime Minister Romano Prodi is heading to Brussels to sound out what space there might be for extra time to reduce Italy's budget deficit to below the European Union limit, a government source said on Sunday.
Elected in April, Prodi's centre-left government is completing due diligence on accounts it expects will show the previous centre-right government overshot its deficit forecasts after five years of sluggish growth. He meets on Monday with Jose Manuel Barroso, president of the EU executive, among other officials.
Although Prodi will not be in a position to formally ask for another extension, he will try to gauge flexibility regarding Italy's 2007 deadline to bring its deficit below the EU-limit of 3 percent of gross domestic product.
"The signs are for a deficit above expectations," the government source, who declined to be named, told Reuters.
"There will not be any formal presentation of the outlook for the economy policy strategy. We want to show that we're working seriously," the source said.
"Later, when the numbers are clear at the end of the due diligence, we'll assess whether its appropriate to ask for a delay" on Italy's deficit timetable.
Last year's budget deficit of 4.1 percent of GDP was the highest since 1996 and the Paris-based Organisation for Economic Co-operation and Development (OECD) warned last week that without corrective measures it would be at least as high this year and rise to 4.6 percent in 2007.
The debt-to-GDP ratio, which climbed in 2005 for the first time in a decade to 106.4 percent, would also keep rising, the OECD said.
Ratings agency Fitch last week put Italy on negative ratings watch and said it may cut its creditworthiness within 3-5 months at the end of a review of the prospects for growth and the deficit.
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