Cut the fiscal deficit to preserve growth : ECB

Sri Lankan Police forming a human chain in parliament to protect the Speaker and enable a vote.

ROME, Sept 5 (AFP) – Italy must take immediate steps to improve its public finances in order to preserve its economic recovery, an Italian member of the European Central Bank’s executive board insisted on Tuesday.

“To put off or dilute corrective measures means that we will continue to talk of taxes and operations on public finances in the next years, which will have a depressing effect on the economy,” Bini Smaghi told the newspaper Corriere della Sera.

Smaghi also criticized an announcement by the government of Prime Minister Romano Prodi of a five-billion-euro (6.4-billion-dollar) reduction in savings measures in the 2007 budget because of a surge in tax receipts.

“The economic logic escapes me,” Smaghi told the paper.

“The recent increase in receipts is due in large measure to a better-than-expected economic cycle. It’s a temporary factor and there is no guarantee it will be repeated.”

His warning comes as Prodi, according to the newspaper Repubblica, is considering an easing in the impact of austerity measures next year to 27 billion euros from 30 billion officially forecast in order to win the backing of left-wing elements in his majority.

Smaghi stressed that the public defici