Populists May Grant Concessions to EU on Deficit: Italy Update

(Bloomberg) -- Italy’s coalition government may lower budget-deficit targets after pressure from European Union institutions.

Here is the latest news, updated throughout the day.

EU Concern (1:32 p.m.)

Pierre Moscovici, EU commissioner for economic and financial affairs, said the latest comments from Italy showed leaders had heard EU concerns about the budget. Speaking on the sidelines of a conference in Paris, he said it would be a “good signal” if Italy changed its long-term deficit targets. But a deficit of 2.4 percent of GDP, which the government is planning for 2019, risks breaking EU rules, he said.

A note of skepticism (12:55 p.m.)

Markets responded positively to the deficit pledges. Government bonds snapped four days of declines and the FTSE MIB index of shares headed for the biggest gain in more than a week.

Strategists at Rabobank, including Richard McGuire, earlier had struck a less optimistic tone.

“We would suggest that given Tria’s own optimistic growth assumptions combined with the coalition’s populist leanings, the proof in the pudding, as it were, will likely come well before 2021,” they said in a note. “Given the very real risk that the higher than desired near-term targets might not actually be adhered to, even if the market is this morning enjoying the prospect of a somewhat watered down budget deficit approach, the lasting nature of such sentiment may prove short lived.”

Tria promises ‘constant’ reduction of debt (12:16 p.m.)

Finance Minister Giovanni Tria said at an event in Rome that Italy has committed to “ensure a constant reduction of the debt toward the objective agreed with the EU.” However, he said, the deficit-to-GDP ratio will rise in a “contained” fashion in 2019 over 2018 before turning downward.

“The government intends to follow an approach that combines fiscal responsibility and stimulus to economic growth, and we will ensure starting next year an acceleration of debt reduction compared with what happened in the past,” Tria said. “By doing this we will respect the two main commitments we took when the government asked the parliament for a confidence vote. We are still working on finalizing the budget profile with regard to that and a profile for the planned deficit that can be consistent with that.”

Di Maio confirms potential concessions (11:00 a.m.)

Speaking in Rome, Deputy Prime Minister Luigi di Maio confirmed earlier reports that ministers had discussed ways to lower the deficit target for 2020 and 2021. Di Maio added that 10 billion euros is the minimum amount that would allow implementation of citizens’ income.

Deficit Declines (10:00 a.m.)

Italy’s first-half budget deficit fell this year, in a positive sign for the country’s new government. The gap contracted to 1.9 percent of gross domestic product in the first six months of 2018, from 3 percent in the first half of 2017, national statistics agency Istat said. Yields fell across the sovereign yield curve.

Teneo’s Nickel: policy volatility is here to stay (9:40 a.m.)

“I think this is the new normal of the political conversation in Europe and rich democracies,” Carsten Nickel, Managing Director: Europe at Teneo Intelligence, said in a BloombergTV interview with Anna Edwards in London. “This uncertainty, this volatility is with us to stay for the foreseeable future, because if you look at the messy Italian politics, this works out for these guys, it’s positive for them.”

Salvini says both debt, deficit will fall (9:34 a.m.)

Deputy Prime MinisterMatteo Salvini, Salvini said on Canale 5 national TV that he is certain that starting next year debt will fall “because more people will go back to work.” He also said he doesn’t “give a damn” about threats from the European Union or France over Italy’s finances and that he hasn’t made concessions on the budget.

Reports of Deficit Concessions (3:58am)

Targets for 2020 and 2021 were discussed during a late-night ministers’ meeting in Rome attended by Di Maio and Salvini, according to local media reports.

Corriere della Sera newspaper reported that the populist government could maintain its plan for a shortfall of 2.4 percent of gross domestic product for 2019, while reducing the targeted gap to 2.2 percent and 2 percent for the two successive years respectively.

Earlier:
Italy May Offer Concessions to EU on Deficit Aims, Corriere Says
The Italian Crisis Has Just Crossed the Rubicon: Macro View

Coming Up:

• Full details of the fiscal framework expected to be released in coming days
• Italy has to submit its draft budget plan to the European Commission by Oct. 15

--With assistance from Maria Ermakova, Marco Bertacche and William Horobin.

To contact the reporters on this story: John Follain in Rome at jfollain2@bloomberg.net;Chiara Albanese in Rome at calbanese10@bloomberg.net;Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editors responsible for this story: Jerrold Colten at jcolten@bloomberg.net, Alessandra Migliaccio, Anne Swardson

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