Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Italy may cut deficit target in bid to appease European Commission

Published 11/26/2018, 06:42 AM
Updated 11/26/2018, 06:42 AM
© Reuters. FILE PHOTO: Italy's Minister of Labor and Industry Luigi Di Maio, Prime Minister Giuseppe Conte and Interior Minister Matteo Salvini leave at the end of a news conference after a cabinet meeting at Chigi Palace in Rome

By Giuseppe Fonte and Steve Scherer

ROME (Reuters) - Italy's governing coalition may reduce next year's budget deficit target to as low as 2 percent of gross domestic product to avoid disciplinary action from Brussels, two government sources said on Monday.

The move set off a rally in financial markets but it was unclear if the downward revision would be enough to satisfy the European Commission.

The goal in the draft budget is now 2.4 percent of GDP, much higher than the 0.8 percent set by the previous government, prompting European partners to first threaten a formal rebuke on Oct. 23.

The leaders of both parties in the governing coalition, which is composed of the right-wing League and the anti-establishment 5-Star Movement, signaled they are open to lowering the deficit goal ahead of a meeting to discuss the move scheduled for Monday evening.

The meeting, which another government source said would be at 7:30 p.m. (1830 GMT), could lead to a breakthrough in the standoff with Brussels that has roiled financial markets concerned about the sustainability of Italy's massive debt and a prolonged fight with its European Union partners.

Since presenting the draft budget two months ago, both coalition party leaders have repeatedly refused to budge on their spending plans.

The European Commission has called for a reduction of the structural deficit that adjusts for the economic cycle and one-off measures.

On Monday, League leader Matteo Salvini said Brussels had offered "positive feedback" on plans to lower the target.

Italian stocks rallied and bond yields fell by more than 30 basis points to reach over two-month lows on the prospect of a government climb down.

A meeting between Prime Minister Giuseppe Conte and European Commission President Jean-Claude Juncker on Saturday appeared to open the way to a softening of Italy's position.

The move also comes after the Bank of Italy warned on Friday that rising yields on Italian government bonds were hurting private wealth and undermining the country's financial sector, making it more expensive for companies to borrow.

On Monday, the European Central Bank's chief economist, Peter Praet, said increasing borrowing costs would offset any of the possible economic advantages to hiking spending in breach of EU rules next year.

Salvini, who is also deputy prime minister and interior minister, on Sunday said "no one is stuck" to the 2.4 percent target.

Deputy Prime Minister Luigi Di Maio, who heads the 5-Star, said as long as the measures in the budget remain unchanged, including the Movement's flagship citizen's income, then lowering the deficit goal is not a problem.

© Reuters. FILE PHOTO: Italy's Minister of Labor and Industry Luigi Di Maio, Prime Minister Giuseppe Conte and Interior Minister Matteo Salvini leave at the end of a news conference after a cabinet meeting at Chigi Palace in Rome

"What is important is that the budget contains the goals that we have established," Di Maio said on Monday. "Then if the negotiation means that the deficit (target) must come down a bit, for us it's not important."

Latest comments

No matter the results that will specifically arise from the budget but what really matters is that the EU has definitely shown much more flexibility and it is willing to make compromises. In other words the EU is now listening to the needs of Italy as a country and the Italian people. This indicates a great step forward.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.