Italy's president warns against reckless changes to 2014 budget

Reuters

* Napolitano warns Italy must respect EU commitments

* Parties pledge to change budget in parliament

* Unions strike, call for more tax cuts

ROME, Oct 18 (Reuters) - Italian President GiorgioNapolitano warned political parties on Friday not to change thegovernment's 2014 budget in ways that would threaten thecountry's public finance commitments to the European Union.

"It's right to have more emphasis on growth, in Italy and inEurope, but not to imagine that there is no longer the problemof consolidating public finances," Napolitano said in a videolink-up with an industrial conference in Naples.

The budget, presented to the European Commission on Tuesday,has been met by a wall of criticism across the politicalspectrum by parties which have pledged to make major changesduring the bill's passage through parliament.

The ruling parties complain about various aspects of thebill but the one criticism they have in common is that apromised cut in payroll taxes is much too timid, saying thatLetta lacked the political courage to take more decisive steps.

"We have to be careful about the word courage ... We have toavoid that courage which is too easy doesn't translate intocourage that is irresponsible," the 88-year-old president said.

Napolitano added that Italy had this year been allowed toleave the EU's blacklist of countries with fiscal deficits above3 percent of output, and it was important that it remained clearof the group of deficit sinners.

The budget, which must be passed by parliament before theend of the year, aims to reduce the deficit to 2.5 percent froma targeted 3.0 percent this year.

Napolitano, who appointed Letta as prime minister in Aprilafter an inconclusive February election, is often seen as theultimate defender and guarantor of an unpopular coalitiongovernment combining traditional rivals on the left and right.

The budget has been criticised not only by the parties, butalso employers' groups, trade unions and many economists fordoing too little to reduce spending, cut the tax burden orotherwise reform the economy to make it more competitive.

Many of these groups are appealing to the parties to makechanges, increasing the prospect that the package will becompletely overhauled during its passage through parliament,with more emphasis on tax cuts and less on fiscal constraints.

On Friday civil servants, hospital staff and transportworkers went on strike against the budget, with furtheranti-austerity protests on tap on Saturday. Unions are expectedto announce bigger demonstrations next week.

Letta and Economy Minister Fabrizio Saccomanni have stressedthey would welcome budget amendments, unlike the usualgovernment inclination to ringfence its legislation as much aspossible.

But the political tensions and the government's weaknesscould mean budget amendments for larger and unfunded tax cuts,posing a threat to the goal of keeping the fiscal gap below theEU's ceiling of 3 percent of output.

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