Italy Expects EU Flexibility on Budget After Government U-Turn

(Bloomberg) -- Italy’s new government is confident it can exploit friendlier ties with the European Union to obtain a flexible approach to its 2020 budget deficit and avoid a repeat of previous clashes, according to a senior lawmaker.

The coalition headed by Premier Giuseppe Conte will respect EU fiscal rules in the spending plans it’s due to submit to the European Commission by mid-October, Graziano Delrio, who heads Democratic Party lawmakers in the lower house of parliament, said in an interview at his Rome office Monday.

“I believe this government starts out with greater credibility in Brussels, so we can have a negotiation on a solid basis, not on the belief that measures can bring gross domestic product to 2%, that would be ridiculous,” said Delrio, who helped draft the government’s program and whose party is the junior partner in the alliance with the anti-establishment Five Star Movement. The EU projects Italy’s output to grow 0.1% in 2019.

Conte’s previous administration, of Five Star and Matteo Salvini’s rightist League party, was twice on the brink of EU sanctions over budget plans based on unrealistic expectations, with Salvini regularly sniping at Brussels. His new, more centrist government has taken a strong pro-European stand and is basing its budget on more conservative assumptions.

Economic Situation

Italy has committed to reduce its structural deficit and bring debt on a downward path. But EU rules allow some room to soften these requirements, for example by taking into account the impact of natural disasters.

Conte has yet to reveal where he will find some 23 billion euros ($25 billion) in savings or extra revenue to fulfill his promise to block an automatic sales tax hike. He has also pledged to cut taxes on labor.

“I don’t think there will be a war with Brussels, I think it will be a discussion,” said Delrio, 59, a former transportation minister and cabinet undersecretary. “We’re confident we will obtain flexibility, also because the economic situation in the euro area is not brilliant.”

Read More: Italy Targets 2020 Deficit as Low as 2% Amid Economic Slowdown

“We have a raft of pro-European Italians, I think that’s a guarantee for Europe,” said Delrio, who pointed to figures from Conte who backed Ursula von der Leyen as head of the new commission, to ex-premier Paolo Gentiloni who is expected to be the next economy commissioner.

©2019 Bloomberg L.P.