Italy slips back into recession, Germany rejects France growth appeal

07.08.14 @ 09:24

  1. By Honor Mahony
  2. Honor email
  3. Honor Twitter

BRUSSELS - Italy has slipped back into recession putting pressure on Prime Minister Matteo Renzi to fulfil promises to see through major structural reform to boost growth.

The Italian economy, the third largest in the eurozone, shrank 0.2 percent in the second quarter, the country's national statistics office said Wednesday (6 August).

In response to the news, Renzi wrote to lawmakers to urge them have "courage" to look at reality.

“The negative growth data should not lead us to make the usual automatic excuses."

Finance minister Pier Carlo Padoan defended the government's reform plans and said the country would not now need a corrective mini budget to stay on the right side of the EU's fiscal rules.

"The (GDP) figure is negative, but there are also positive elements. Industrial production is much better and consumer spending is continuing to increase, albeit slowly," said Padoan, who also rejected any talk of a 'troika' - the EU commission, ECB and International Monetary Fund - to push reforms forward.

However the news is a blow for Renzi who swept to power earlier this year and promised a raft of changes to the tax, judicial, public administration and electoral systems.

To date, however, he has only managed some income tax cuts and become mired in a fight over reform of the Italian senate.

Renzi argues that this kind of constitutional reform is needed before other labour market reform can be undertaken.

The Italian PM has been among those calling the loudest for flexibility in the interpretation of the rules that govern debt and deficits in the eurozone.

However other partners and the EU commission have indicated they wanted to see more structural reform undertaken first.

The commission reiterated this on Wednesday and noted that Italy had already been told that it should stick to its budget plans.

The other leader calling for flexibility and support from its EU partners is France's Francois Hollande.

In an interview with Le Monde recently, the French president urged Germany and the European Central Bank to do more to boost growth.

However he was firmly rebuffed on Wednesday.

A German government spokesperson said that the "very general declarations" from Paris did not supply any reason to change economic policy.

"Germany is already an important engine, even the most important, for growth in the eurozone," said the spokesperson.

Hollande is also struggling to push through structural reforms and has already been given two year's grace - from 2013 to 2015 - to bring his country deficit in line with euro rules but is on course to miss the target once more next year.

Meanwhile amid the bad news for the eurozone's second and third largest economies, one bailed-out country, Ireland, published a positive outlook.

The country’s economy is expected to expand by 3.4 percent this year, according to data published by the Economic and Social Research Institute (ESRI).

Ireland received a bailout in 2010 and exited it in late 2013 having undergone years of harsh austerity in return for the loans.