June 22, 2018 / 1:59 PM / 5 months ago

UPDATE 1-Italy finance minister mixes cautious, defiant tones on EU debut

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By Francesco Guarascio

LUXEMBOURG, June 22 (Reuters) - Italy's new finance minister said on Friday he will aim at respecting European Union fiscal rules to try to calm market jitters over the new Italian government, but attacked a Franco-German plan to reform the bloc's banking sector.

In his debut at a meeting of EU finance ministers, little-known economic professor Giovanni Tria, tried to ease doubts over his country's fiscal stability, by partly committing to respect EU rules that require a balanced structural budget and a reduction of large public debts.

But he stressed that this would be done while implementing a new set of revenue and spending policies.

"The intention is obviously to try to respect" EU requests for new belt-tightening measures, but "there could be some slight deviation," he said, due to the fact that the economy is now slowing down.

On Thursday, the head of the International Monetary Fund, Christine Lagarde, had warned that Italy's unclear budget policies and possible fiscal easing were among the major risks for the euro zone economy and caused tensions in global markets .

Tria said the IMF could make proper assessments only after actual decisions were made by the new Italian government.

In a remark that ran contrary to a widespread eurosceptic narrative in Italy, he acknowledged that Italy's fiscal discipline was dictated by markets and not by the EU.

As he arrived at a two-day meeting of finance ministers, he also reiterated his commitment not to quit the euro currency, although markets had paid more attention to the appointment of two eurosceptic economists to key roles in the Italian parliament, which caused turmoil on Thursday.

His cautious approach was however mixed with criticism of plans for banking reform proposed this week by Germany and France, which are Italy's main partners in the euro zone.

He said the EU should not set quantitative targets to reduce banks' stocks of bad loans, as proposed by Paris and Berlin to speed up the strengthening of the bloc's banking sector .

Italy's banks hold the largest amount of bad loans in the EU, despite having significantly reduced their exposure in recent months.

Tria's position on bad loans reflected Italy's usual stand, but could represent a further hurdle to a wider banking reform aimed at increasing the bloc's financial stability.

Reporting by Francesco Guarascio in Luxembourg, additional reporting by Francesca Piscioneri and Gavin Jones in Rome editing by David Evans/Keith Weir

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