Italy's government may offer the European Commission a minor concession when it resubmits its budget after an unprecedented rejection last month.
The populist administration may admit its 2019 spending plans will have a smaller economic impact than previously projected, and cut its growth target to as low as 1.3 per cent from 1.5 per cent, Il Sole 24 Ore reported on Tuesday.
Italian newspaper La Stampa reported that finance minister Giovanni Tria wants to lower the 2019 GDP growth target even further to 1.2 per cent, which would be in line with the level forecast by the commission.
But there will be no movement on the controversial budget gap, major newspapers said. Still, prime minister Giuseppe Conte hopes the resubmission to the EU will be at least partially conciliatory, Il Messaggero reported.
Deputy prime ministers Luigi Di Maio and Matteo Salvini have been insisting on the original plan.
Italy has until the end of Tuesday to resubmit its spending plans. Rome says the expansive budget is needed to provide a stimulus to growth, but authorities in Brussels are concerned about what it will do to the country's debt, already Europe's largest in absolute terms.
Corrective measures
"The government is unlikely to propose any change to its budget deficit targets," analysts at UniCredit said in a note to investors. Still, "it is likely to be ready to take corrective measures to avoid any further increase in the deficit compared to its targets that might occur due to weaker growth prospects," they also said.
In addition to causing clashes with the commission, the fiscal plans have also unnerved investors and sent borrowing costs to the highest in more than four years. Italian bonds fell on Tuesday, with the yield spread between the 10-year yields and the equivalent German bunds hovering for a second day above the threshold of 300 basis points.
Domestically, it’s not been much smoother, with a push to deliver on election promises sparking wrangling between deputy prime ministers Mr Di Maio of the anti-establishment Five Star Movement, and Mr Salvini of the anti-migrant League.
Mr Conte is due to hold a meeting with key ministers on the 2019 budget later on Tuesday.
In addition to predicting weaker growth, the EU’s executive arm said Italy’s budget deficit will move dangerously close to the EU limit of 3 per cent. Mr Tria rejected that at the time, saying it was based on “inadequate” analysis.
He’s also insisted that the “pillars” of the budget would remain unchanged and that adhering to EU demands would be disastrous for the economy, which stagnated in the third quarter.
"We would need extremely violent fiscal tightening, going to a deficit of 0.8 per cent, which for an economy that is slowing significantly would be suicide," he said last week after meeting with Eurogroup President Mario Centeno. – Bloomberg
