EU working with Italy to solve bad loan problem - EU official

ROME (Reuters) - The European Commission is working closely with Italy to help it deal with the mass of bad loans piled up in its banks, commission vice president Valdis Dombrovskis told Reuters on Monday.

"We are aware of the problem and we are working closely with Italian authorities to find a solution," Dombrovskis, who oversees the euro in the commission, said in an interview.

Italy has been discussing ways to deal with some 186 billion euros (134 billion pounds) in loans that are unlikely to be repaid and drag on a fragile economy which has shrunk for the last three years.

Dombrovskis added that Italy's forecast for economic growth of 0.7 percent in 2015 and 1.4 percent was "realistic", and said the EU views the government's debt and deficit targets positively.

In a three-year financial planning document published on Friday, Italy forecast its deficit would fall to 2.6 percent of output this year, comfortably under the EU's 3 percent limit, while debt is expected to reach 132.5 percent of GDP before declining to 130.9 percent in 2016.

(Reporting by Francesca Landini and Giuseppe Fonte, writing by Isla Binnie)