* Italy, Germany reach deal on using existing flexibility in fiscal rules
* European Commission to prepare report on effectiveness of rules by Dec 14
* Structural reforms should be rewarded with more time to consolidate budgets
* Use of structural reforms clause opens risk of political influence
By Jan Strupczewski
BRUSSELS, June 27 (Reuters) - European Union leaders agreed on Friday that growth-boosting structural reforms should be rewarded with more time to improve public finances under existing EU budget rules in response to pressure from Italy to shift emphasis from austerity to growth.
After four years of a sovereign debt crisis, when reducing deficits was key for the euro zone to regain market confidence, the biggest headaches for most governments now are record high unemployment, moribund growth and high debt.
Under EU rules, governments have to strive towards a budget close to balance or in surplus, excluding one-off revenue and spending and the effects of the business cycle. They also have to reduce public debt.
But the rules also say that governments can be given more time to reach budget balance if they undertake reforms that have a verifiable positive impact on economic growth -- an option that has so far never been used.
Italy's Prime Minister Matteo Renzi, whose country has the second biggest debt in Europe at more than 135 percent of GDP, has been pushing for a more growth-friendly interpretation of the fiscal rules since he took office in February, because without faster growth Rome won't be able to pay down its debts.
Renzi, whose standing among EU leaders was boosted by the strong support he received in European elections in May, is not calling for a change in the rules, but for making use of the unused leeway they offer in exchange for structural reforms.
ITALY, GERMANY HAVE A DEAL
Germany, the most ardent defender of tough budget policies, has been worried that fiscal leniency could lead to a new spending spree by governments taking advantage of low borrowing costs and open the way for a new crisis.
But Renzi and German Chancellor Angela Merkel reached a deal late on Friday on how the shift in emphasis in the EU fiscal rules, called the Stability and Growth Pact, should be phrased to balance the need for flexibility and fiscal prudence.
"The possibilities offered by the EU's existing fiscal framework to balance fiscal discipline with the need to support growth should be used," the leaders said in a section of the final summit statement approved on Friday.
"Given the persistently high debt and unemployment levels and the low nominal GDP growth, as well as the challenges of an ageing society and of supporting job-creation, particularly for the young, fiscal consolidation must continue in a growth-friendly and differentiated manner," the text said.