Italy - along with France, Greece and Ireland - will fail to meet its medium-term goal of a balanced budget by 2010, the European Central Bank predicted on Thursday.
The ECB explained in its latest monthly report that Italy's efforts to correct its budget were hindered by low economic growth in real terms.
The ECB added that Italy had also failed to adopt specific measures to reduce public spending.
Nevertheless, the ECB did compliment Italy, along with Portugal, for making progress in reducing its budget deficit since 2006, when it stood at 4.4% of GDP compared to 2.4% last year.
In its monthly report, the ECB observed that there will be a slowdown in economic growth for the whole euro zone in 2008.
The main cause for this, the bank explained, was ''uncertainty caused by turbulence on financial markets''.
In regard to inflation, the ECB warned against linking salary increases to inflation rates because this would ''create a salary-inflation spiral which would have negative effects on employment and competitiveness'' in those countries adopting such a sliding scale.
The Italian Treasury on Wednesday slashed growth forecasts for the Italian economy and predicted a higher budget deficit for 2008.
The revision was in response to a general economic slowdown brought on by high prices for fuel and raw materials as well as the soaring value of the euro against the dollar, which will hurt Italian exports to the USA.
GDP this year will rise by 0.6% over 2007, compared to the Treasury's early forecast of 1.5%, and as a consequence the 2008 deficit will rise to 2.4% of GDP, instead of 2.2%.
The public debt, which fell to 104% of GDP in 2007, should decline this year to 103% of GDP and fall below 100% of GDP by 2010, the Treasury said.
