Renzi has vowed to quit if he loses the vote to Italy's parliament and electoral system

Italy is to seek a new deal with the European Union to allow it to start its stalling economy with an expansionary 2017 budget, a government minister said on Saturday.

Economic Development Minister Carlo Calenda's comments came three months after Rome was granted "unprecedented" leeway over its 2016 budget and warned by the European Commission that it should be tightening fiscal policy nextyear.

Calenda spoke out after data published yesterday showedthe Italian economy failed to grow between the first andsecond quarters of this year, suggesting a sluggish recovery which began last year has stalled. Analysts say the government will now have to revised ownwards its forecasts of growth of 1.2 per cent for this year and 1.4 per cent in 2017, with knock-on effects on its deficit reduction plans.

"The Treasury will present updated figures in September. I can't hide the fact that the room for manoeuvre is tight,"Calenda told Turin daily La Stampa. "We are discussing with Europe how to address the absolutenecessity of boosting public and private investment."

Calenda implied that could mean allowing the 2017 budget deficit to run higher than previously planned, possibly up tothe three percent of GDP ceiling enshrined in the eurozone'srules. The Commission has set Italy a deficit target of 1.8 percent for 2017, arguing that kind of adjustment is necessary toreverse the upward trend in the country's huge debt, which hita record of just under 2.25 trillion euros (USD 2.51 trillion)in June.

"We intend to respect the rules but we are also fightingto change them," Calenda said. "The unbreachable limit is thedebt, which cannot increase. "We have already obtained a lot of flexibility, we intendto ask for more, the maximum possible, but always within therules."

Other Italian newspapers were unanimous today inpredicting that Prime Minister Matteo Renzi would defyBrussels by presenting an expansionary budget in mid-October. The youthful premier's popularity has waned of late and hehas staked his future on a constitutional reform referendumscheduled to take place in November. Renzi has vowed to quit if he loses the vote on plans tostreamline Italy's parliament and electoral system.