(Bloomberg) -- The Italian government will trim its deficit target for next year in its latest proposal that seeks to avoid European Union sanctions for violating the bloc’s budget rules, the Ansa news agency reported.
“We have reached agreement on everything,” Deputy Prime Minister Matteo Salvini said after a lengthy budget meeting in Rome Sunday night. The budget would be “within limits that should please the EU.”
The government has adjusted the plan to cut its budget deficit target to 2.04 percent of gross domestic product for next year, down from its initial estimate of 2.4 percent, Ansa reported, citing government officials. The original target was rejected by the European Commission, which threatened penalties if Italy didn’t back down. Prime Minister Giuseppe Conte had earlier floated the lower deficit number.
The showdown over spending in the euro area’s second-most-indebted nation was triggered by March elections that brought the government to power on promises to provide a “citizen’s income” for the poor, tax cuts and a lower retirement age. The clock was ticking for Italy with senior commission officials set to meet Wednesday, when they could decide whether the budget was within the rules or merited the start of a disciplinary process and possible fines.
The distance between Italy and the EU has narrowed but the government had been asked to come up with an additional 3.5 billion euros ($4 billion) to reduce the structural deficit, Corriere della Sera and other Italian newspapers reported Sunday. While Ansa reported earlier that the government had found another 3 billion euros in resources, Salvini declined to confirm the number after the meeting.
“It remains to be seen whether the new deficit forecast will be enough to bring the dispute with the EU to an end,” Jack Allen, senior European economist at Capital Economics, wrote in a Dec. 13 note based on Conte’s initial proposal.
Deputy Premier Luigi Di Maio told Ansa after the Rome meeting that the government planned to maintain the minimum basic income as promised and had come up with further tax cuts.
Yields on 10-year government debt fell last week to the lowest level since September after Rome proposed to cut the 2019 budget shortfall. Italy risks fines for violating EU rules on deficits.
Conte wants to submit changes to the existing budget legislation to the Italian Senate on Tuesday or Wednesday, so he can obtain final approval by parliament by the end of the year.
--With assistance from David Tweed.
To contact the reporters on this story: Andrew Davis in Hong Kong at abdavis@bloomberg.net;Chiara Albanese in Rome at calbanese10@bloomberg.net
To contact the editor responsible for this story: Brendan Scott at bscott66@bloomberg.net
©2018 Bloomberg L.P.
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