Italy’s doesn’t budge in clash with EU over budget deficit

People walk past the entrance of the London Stock Exchange in London

People walk past the entrance of the London Stock Exchange in London Britain. Aug 23 2018. REUTERS Peter NichollsMore

The country's ruling coalition had been given time to change its plans for 2019 but insisted an anti-austerity approach would help kickstart growth in the eurozone's third largest economy and reduce the public debt and deficit.

European officials have staunchly opposed the 2.4 percent deficit, which is more than three times the target of the previous government, and at a level that would keep Italy from reducing its debt load as it had promised.

The source said the Treasury could reduce its GDP estimate for next year to convince Brussels that Italy would not go above a deficit of 2.4 percent of GDP in 2019.

Italy's Economy Minister Giovanni Tria has accused Brussels of getting its sums wrong.

The commission rejected Italy's budget plan last month and said its breached European Union rules - its first rejection of a member state's fiscal plan.

Since it's rejection of the first budget proposal, the European Commission has since downgraded Italy's growth and deficit projections.

In a statement released after a cabinet meeting, Salvini said the deficit target would remain at 2.4 percent of economic output, and the growth forecast at 1.5 percent, though asset sales would be beefed up and spending closely monitored.

"If you ask us to tackle waste, to find more resources, we can talk about that", M5S head and deputy prime minister Luigi di Maio said on Sunday.

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Italy now runs the risk of being fined up to 0.2 percent of GDP - which would amount to about €35 billion ($39.5 billion).

European Economics Commissioner Pierre Moscovici has said he hopes a compromise can be found to avoid sanctions.

On Oct. 19, Moody's ratings agency downgraded Italy's sovereign bonds to Baa3 from Baa2, saying it "considers the government's projections to be optimistic" and that the nation's bloated public debt "makes Italy vulnerable to future domestic or externally-sourced shocks, in particular to weaker economic growth".

A demonstration has been called for the 8 December by Matteo Salvini to say "peacefully" to the "gentlemen of Brussels: let us work, live, and breathe".

"The strong market reactions to political events in the past have sparked new concerns about the links between banks and sovereign debt in some parts of Europe - this is the basis of the request for fiscal discipline and compliance with the rules", he said.

All eyes are now on the "spread" - the difference between yields on 10-year Italian government debt compared with those in Germany - which has more than doubled since May, when negotiations to form the coalition government in Rome began.

The Italian government could face sanctions if it does not comply.

A wider fear is that stress in Italy could spread to other European countries which are only just recovering from the eurozone debt crisis.

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