Italy's hopes of more flexibility on EU spending rules run into stiff opposition at the first ECOFIN summit of its five-month EU presidency. Joanna Partridge reports on whether a new faultline is appearing in the bloc's political relationships.
The euro zone's on the long road to recovery. Even Europe's biggest economy, Germany, could be losing momentum. Exports and imports dropped much more than expected in May. While neighbouring France's economy only grew 0.2% in the second quarter. Euro zone finance ministers meeting in Brussels discussed how to foster growth while sticking to EU budget rules. Italy is taking over the rotating six month EU presidency. Pier Carlo Padoan is its Finance Minister. SOUNDBITE: ITALIAN FINANCE MINISTER PIER CARLO PADOAN SAYING (English): "We are delivering our structural reforms in Italy and my purpose as chair of the European Union Presidency for this semester is to help all countries to find incentives and pressure to reform." But reform is a divisive subject in the bloc. Italy is leading a drive for more flexibility in how budget rules are applied - to encourage growth and investment. After years of austerity, it now wants "incentives" to reform. But Germany doesn't think they should avoid long-promised spending reforms. Nor does the head of the euro zone finance ministers Jeroen Dijsselbloem. SOUNDBITE: EUROGROUP CHAIRMAN AND DUTCH FINANCE MINISTER JEROEN DIJSSELBLOEM SAYING (English): "If you look at unemployment figures, that will certainly tell you the story that competitiveness has to improve and economic growth has to pick up and lots of work needs to be done. Italy has been showing almost zero growth of productivity for many years and that has to improve for the economy to become stronger." The battle lines are drawn between Italy and its allies who are in favour of more fiscal flexibility - and those who are calling for reform. William de Vijlder from BNP Paribas says some room for manoeuvre is needed, while countries work to bring down their budget deficits. SOUNDBITE: William de Vijlder, BNP Paribas Investment Partners, saying (English): "The urgency is less overwhelming now than it was before, the second reason is that it would not be a good idea to adopt a very harsh policy now, running the risk of again creating doubts with consumers, corporates, on what the domestic economy is doing, because if you follow a very harsh fiscal policy, it is hitting the domestic demand, it is not hitting external demand, and pick up in domestic demand is important." Italy also faces other challenges. It has the second-highest debt in the euro zone, proportionate to national output, only behind Greece. Rome's debt is also predicted to reach 135% of output at the end of the year.