EU Drills Into Italy’s 2020 Deficit Before Decision on Sanctions

(Bloomberg) -- The European Commission is focusing on Italy’s 2020 deficit projections as the key element to determine whether it will open disciplinary proceedings next week.

The latest information sent by Rome shows progress toward meeting budget targets for this year but not for the next, an official familiar with the negotiations said.

A potential meeting later this week between Prime Minister Giuseppe Conte and Commission President Jean-Claude Juncker on the sidelines of the Group of 20 meeting in Japan could be the last chance to strike a compromise, the official said, asked not be named discussing confidential talks. Commissioners are due to take a decision next week.

EU officials have repeatedly said that Italy’s failure to make progress on its budget will likely persuade the commission to recommend starting disciplinary measures against Italy when the EU’s executive arm meets on July 2.

Italy and the EU have been clashing over fiscal policy since the populist government took power last year. Brussels wants swift action to cut the nation’s debt load, the second-biggest in the euro area. Rome argues that it needs to reduce its deficit slowly to avoid harming the economy after years of stagnation.

Deputy Prime Minister Matteo Salvini brushed off the idea of additional concessions for 2020 at a press conference in Rome Tuesday.

"We have given the EU all possible commitments," he said. "The numbers are clear and the numbers are telling us that the Italian economy is healthy and wants to grow. We are not in the Middle Ages anymore."

As the negotiations proceed, Italian officials have been upbeat about the country’s fiscal performance and the possibility of avoiding censure, despite repeated warnings from Brussels.

“Italy is substantially compliant with the European fiscal rules,” Finance Minister Giovanni Tria said on Tuesday. “I don’t see obstacles to an agreement.”

Claudio Borghi, the head of Italy’s lower house budget committee and one of the populist coalition’s leading euroskeptics, said the country’s deficit will be around 2% this year, less than previously forecast.

--With assistance from Chiara Albanese.

To contact the reporters on this story: Alessandro Speciale in Rome at aspeciale@bloomberg.net;Viktoria Dendrinou in Brussels at vdendrinou@bloomberg.net

To contact the editor responsible for this story: Ben Sills at bsills@bloomberg.net

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