Italy Considers Tweaks to Budget Ahead of EU Deadline

(Bloomberg) -- Italy’s finance minister is working on limited adjustments to the populist government’s 2019 budget, according to a media report, as European Commission Vice President Valdis Dombrovskis delivered a warning ahead of a Tuesday deadline to revise the spending plan.

Finance Minister Giovanni Tria, who has fought a losing battle to contain a spending push by deputy premiers Luigi Di Maio of the anti-establishment Five Star Movement and Matteo Salvini of the anti-migration League, will confirm a deficit of 2.4 percent of national growth despite pressure from the commission, newspaper Il Sole 24 Ore reported Saturday.

With Italy’s reply due next week, Tria and his staff are assessing economic growth targets, emergency spending needs after devastating storms, the weight of interest payments on debt and measures to guarantee that there will be no breach of the 2.4 percent target, the newspaper said. Italy could predict growth below a current target of 1.5 percent for next year, after the commission set its own forecast Thursday at 1.2 percent, Sole added.

‘Done Quickly’

In an unprecedented rebuke, the European Union executive body has demanded a revised budget as the government in Rome seeks to meet election promises, including a citizen’s income for the poor, lower taxes and a cut in the retirement age. The commission effectively rejected the proposed budget, saying it constitutes a clear deviation from EU fiscal rules.

“From previous experiences, we’ve seen that damages to the economy can be done quickly,” Dombrovskis said in an interview with La Stampa. “But then it takes years to repair them.”

He said the commission is considering a possible excessive deficit procedure for Italy -- in which the country would have to reduce its deficit by a set deadline or risk sanctions of up to 0.2 percent of economic output. The government’s strategies “are slowing down the Italian economy further,” Dombrovskis said.

In response to Tria’s statement that meeting the commission’s demands would be “suicide” and calling its economic forecasts “a technical fault,” Dombrovskis retorted: “Slogans cannot cancel economic reality.”

Tria is even under pressure from within his ministry, with deputy Massimo Garavaglia of the League urging an acceleration of reforms given growth prospects, rather than slowing down the actions. “There’s probably the need to apply them even faster,” Garavaglia told newspaper Corriere della Sera. “We’re seeing the economy slowing, so all the more reason” for an expansive budget, he said.

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