MILAN (Reuters) - The European Commission will close on Wednesday a procedure against Italy started in 2009 when Rome breached the European Union's deficit ceiling of 3 percent of gross domestic product, several Italian newspapers said quoting Commission documents.

The decision is much awaited in Italy, which has introduced strict fiscal discipline under the government of former prime minister Mario Monti even as it was fighting a deep recession.

The closing of the procedure will put an end to strict EU monitoring of Italian public spending and allow the freeing up resources for up to 12 billion euros ($15.52 billion), Regional Affairs Minister Graziano Delrio told La Stampa on Monday.

"The closing of the procedure alone allows us to boost spending by between 7 and 10 billion euros, 12 billion euros in the most optimistic forecast," said Delrio, who said the money could be used to reduce youth employment and a property tax.

Pier Carlo Padoan, chief economist at the Organisation for Economic Development and Cooperation, said in an interview with La Repubblica he expected a further, significant fall in government bond yields once the EU closes the procedure.

He said the Commission's decision would give Italy more money in the form of an additional tranche of structural funds.

According to the draft proposal that will be put to EU Commissioners on Wednesday, the Commission will also make several economic policy recommendations to Italy.

It will ask Italy to continue with "fiscal consolidation at a pace that is appropriate but compatible with growth" and to keep a primary surplus.

The Commission will also ask Italy to improve the efficiency of its public administration and of its banking system, noting the state of extreme credit crunch. In particular, the EU will tell Italy to remove a rule under which banks take up to 18 years to eliminate certain bad debts from balance sheets and to consider alternative channels - such as the market or private equity funds - to help finance companies.

The EU's executive will suggest Italy takes measures to improve youth and female employment, which has rocketed through the economic crisis, and to shift the fiscal burden from direct income to other forms of taxation.

($1 = 0.7734 euros)

(Reporting By Lisa Juccaediting by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)

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