Italy must raise its economic growth rate to at least the European Union average or it will be “lost”, Romano Prodi, the Italian prime minister, warned on Monday.

In an interview with the Financial Times, Mr Prodi described stronger growth as the priority of his centre-left coalition and said some industries, such as machine tools and footwear, were already boosting their global competitiveness – the Achilles’ heel of the Italian economy for the past 10 years.

Italian gross domestic product growth this year is expected to be close to 2 per cent, the best performance since 2001 but still below the 25-member EU’s average.

“If Italy doesn’t go up very soon to at least the middle of the European countries, we are lost. We have been 24th out of the 25 countries in the last five years,” Mr Prodi said.

Blaming his government’s difficulties partly on the fiscal troubles he inherited in May from the government of Silvio Berlusconi, now the opposition leader, Mr Prodi said: “The situation of the public finances was miserable. The budget deficit was 4.1 per cent of GDP last year. The public debt has started to rise again.

“My idea is clear. I have to put the public finances in order but my first goal is growth, otherwise I shall never have the resources to put my budget in order.”

Mr Prodi also urged his fellow EU leaders not to lose faith in the benefits of embracing new member states, especially Croatia and Macedonia. He said he hoped that membership talks with Turkey would continue in spite of acute problems over Cyprus and the extent of Turkish reforms.

Mr Prodi’s government has a slight majority in parliament’s upper house but he said he still intended next year to pursue economic reforms, such as liberalising public utilities and the energy market, using tax incentives to encourage mergers and acquisitions, and boosting industrial research and development.

“The real situation of Italian industry is not as bad as many think. We have a surplus in our balance of trade, if you take out energy imports,” he said.

In the footwear industry, a traditional Italian strength, “the number of shoes sold has halved in 10 years but revenues have increased. Even in this very simple industry there has been a concrete restructuring and we have placed ourselves in the luxury bracket”.

Mr Prodi said criticisms levelled at his 2007 budget by Italian businessmen were unfair, because he had met one of their central demands by cutting payroll taxes to help competitiveness.

Critics have attacked the budget for raising taxes to reduce Italy’s budget deficit, rather than cutting government spending. But Mr Prodi said his government had not caved in to pressure for redistributive policies from far left parties in his coalition.

“To be scientifically exact, four-fifths of my coalition is not from the far left. Up to now our policies have been honest, European-type, moderate centre-left compromises,” he said.

He vowed to change a controversial electoral system reform passed by Mr Berlusconi’s government, saying it was “a horrible law” whose purpose had been to reduce the size of his victory in April’s general election. “It will not be easy to do the reform but I will try,” he said.