The national flag of Italy flies in front of a monument to the unknown soldier in Rome, Italy. (Photographer: Alessia Pierdomenico/Bloomberg)

Italy's Populist Budget Wins First Key Vote in Parliament

(Bloomberg) -- Italy’s populist government won a key parliamentary vote, moving a step closer to final approval of a budget that has been rejected by the European Union.

Parliament’s lower house split 330 to 219 Friday in a confidence vote on next year’s budget bill. Confidence votes are often used in Italy to ensure legislation is approved without lengthy debates.

Lawmakers will continue work on the legislation Saturday with another vote expected later in the day.

After the lower house votes, the budget will advance to the Senate, where it’s likely to be amended, and then back to the lower house for final approval. The process is due to be completed before the end of the year. The Five Star-League government has been embroiled in lengthy spat with the EU over next year’s proposed deficit target of 2.4 percent of annual economic output, which was rejected by the Brussels-based European Commission.

Prime Minister Giuseppe Conte, who has been striving to take a more conciliatory approach with Brussels, is expected to present a revised budget draft to the EU next week. Italian media reports say the 2019 deficit target may come down to about 2 percent. It’s unclear whether that will be enough to avoid fines from the EU for breaking the bloc’s fiscal rules.

A reduction of the deficit target could force Deputy Premiers Luigi Di Maio and Matteo Salvini to dilute or delay their main election pledges, which include a pension law reform and a guaranteed income for the poor. The two leaders are not willing to cede too much as they are keen to deliver on promises to voters ahead of next May’s European Parliament elections, which they are portraying as a contest between national sovereignty and an interventionist EU.

©2018 Bloomberg L.P.