Italian debt an EU headache

EU Economy Commissioner Olli Rehn (pictured) on Tuesday chided Italy over the nation's excessive public debt levels, confirming the southern European nation would not be given extra time to spend its way out of recession.

"Italy should respect a certain speed of debt reduction, but it's not doing so," Rehn told the "La Repubblica" daily paper. "For that reason, it will not be able to call on the flexibility clause for investments," he added.

Rehn was alluding to a special rider, which will allow countries that meet certain fiscal criteria to spend billions of euros more next year on pro-growth investments.

Spending cuts a must

Italy's debt now stands more than 130 percent of its gross domestic product or overall economic output, the highest rate in the 17-member eurozone after Greece.

In response to earlier criticism of public spending, the coalition government of Prime Minister Enrico Letta had pledged to sell state's stakes in eight companies, including energy giant Eni, aimed at raising up to 12 billion euros ($16 billion) and reducing public debt.

The government also said it was conducting a thorough spending review with a view to identifying savings of up to 32 billion euros by 2016.

But Brussels' Olli Rehn didn't seem to be convinced. "I must be skeptical," he commented, given the progress made so far.

Official November data showed the Italian economy had contracted by another 0.1 percent in the third quarter, shrinking by 1.9 percent over 12 months.

hg/pfd (dpa, AFP, Reuters)