REUTERS SUMMIT-EU's Barroso urges leaders to stick to austerity goals
* Italy election not a rejection of austerity, Barroso says
* EU leaders must stay firm in their commitment to reforms
* Danger for euro zone remains complacency, backsliding
* Fiscal consolidation working in several member states
(Adds quotes, details on more time to meet deficit targets)
BRUSSELS, Feb 26 (Reuters) - European Commission President Jose Manuel Barroso appealed to EU leaders not to give in to populism on Tuesday after Italian voters roundly rejected the austerity policies pursued by outgoing prime minister Mario Monti.
Speaking at a Reuters summit on the future of the euro zone, Barroso said efforts to revive Europe's economy would take time and required determination. The fact Italian voters had turned Monti out of office did not mean his policies, or those advocated by the European Union, were wrong.
"I hope we are not going to follow the temptation to give in to populism because of the results in one specific member state," Barroso, speaking with passion, said of the EU's efforts to combat the sovereign debt crisis.
"The question we have to ask ourselves is the following: should we determine our policy, our economic policy, by short-term electoral considerations or by what has to be done to put Europe back on the path to sustainable growth? For me the answer is clear."
Monti won just 10 percent of the vote in the Sunday/Monday poll, with Italians overwhelmingly backing the movements of former prime minister Silvio Berlusconi and comedian campaigner Beppe Grillo, both of whom reject EU-backed austerity.
Financial markets reacted with alarm. Yields on Italian 10-year government bonds, which reflect the degree of risk investors attach to the country, rose sharply and share prices in Milan tumbled.
The result leaves the euro zone's third largest economy facing an extended period of political uncertainty, with the prospect of another round of elections if a government cannot be formed. In that respect, Italy is mirroring Greece, the euro zone country that sparked the region's debt crisis.
Barroso said it was incumbent on all EU and euro zone countries, especially those receiving aid from the bloc's rescue funds, to retool their economies and cut deficits in an effort to improve competitiveness and stimulate growth.
Such a prescription had worked for Latvia and was showing results in Portugal, Ireland, Spain and Greece, he said, with current account deficits narrowing, unit labour costs falling and exports beginning to pick up.
While the demands of austerity programmes, including deep spending cuts and changes to pensions and labour markets, were harsh and unpalatable to many, they were necessary, he said.
"It is true that the economic policy that we are implementing in the EU because of the financial crisis is a real challenge for political leadership," Barroso acknowledged.
"This requires determination, consistency and coherence over time. We never said it would be easy, it's going to be difficult, and it will remain difficult."
But he said the Commission would not be unnecessarily rigid when it comes to targets, providing extra room to meet deficit goals where necessary, as has already happened with Greece, Portugal and Spain and may be required for France.
"We have to have a mix of policies that keep the root of fiscal consolidation and at the same time promote growth," he said. "Growth is the answer and growth is the goal."
Germany, as the bloc's largest economy, had a particular leadership role to play and should open up its service sector more significantly, work to increase female participation in the workforce and allow wages to rise with productivity.
"We need leadership, democratic leadership, that has the courage to resist short-term considerations and the ability to explain to the public what is at stake and what will be the consequences of following an irresponsible path," Barroso said.
Such a path would include any delay in implementing reform programmes or advocating more public spending, he said, emphasising that leaders could not afford to delay or be complacent in overhauling their economies.
"It's quite clear after the biggest financial crisis in the euro area there are very tough policy decisions to be taken and implemented, and for that we need courageous leadership and leadership that is effective not only in taking decisions but in communicating them," he said.
"We should be serious when we discuss economic policy and not give up to immediate political or party considerations."
Despite the turmoil that has shaken confidence in Europe's single currency project over the past three years and called into question its survival, Barroso said the forces of integration remained far greater than those pulling it apart.
During more than 25 crisis summits since the crisis exploded in Greece in late 2009, EU leaders had not taken a single decision that supported less integration, he said, even if there were deep disagreements among leaders on several issues.
"The centripetal forces are stronger than the centrifugal ones, even if it has at times been bumpy and difficult," he said.
(Additional reporting by Mike Peacock, Jan Strupczewski and Paul Taylor, writing by Luke Baker, editing by Mike Peacock)