Italy's Draghi says EU needs joint budget response to Ukraine crisis

VERSAILLES, France (Reuters) -The European Union must keep stimulating its economy and find a collective response to an array of challenges, including the crisis in Ukraine, Italian Prime Minister Mario Draghi said on Friday.

Draghi said Europe faced mammoth costs tied to defence, climate change and energy transition.

"We have to find a compromise on where to find the resources, because there is no room in the national budget. We need a European response," Draghi told reporters at the end of a two-day informal EU summit in France.

He said the summit had not discussed in detail how to find the hundred of billions of euros required in coming years, whether through joint borrowing or some other means, but it had laid the basis for more formal talks at their next gathering.

"There is a conviction that the (European) Commission must temporarily revisit the rules that have accompanied us in recent years," the former European Central Bank chief said, adding that the EU's fiscal policy "must remain expansionary".

He urged greater coordination of EU countries' defence strategies and said raising the bloc's defence budget to 2% of gross domestic product, as NATO countries have pledged, will cost 1.5 to 2 trillion euros over the next 5-6 years.

Draghi said that despite growing uncertainty and mounting economic headwinds he still expected Italian gross domestic product to rise this year.

He said a positive carry-over effect from last year's GDP expansion meant "we can face a temporary slowdown and still get to the end of this year with another good growth figure."

The government's current official target of 4.7% growth was made last autumn and is expected to be revised significantly lower when it publishes new projections next month.

Draghi was downbeat about near-term prospects for a negotiated end to the war because he believed Russia showed no interest in cooperating.

"From what we can see (Russian President Vladimir) Putin doesn't want peace ... he seems to have other plans," Draghi said.

(Reporting by Angelo Amante and Gavin Jones; editing by Philippa Fletcher)

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