Draghi Foresees an Italy-EU Deal, Reminds Rome of Need for Trust

(Bloomberg) -- European Central Bank President Mario Draghi said he’s “always been confident” that Italy can reach a deal with the European Union in the standoff over the nation’s budget, adding a veiled admonition about trust to his home country.

“Trust hinges on two features: one is respect of the rules, the second one is convergence,” Draghi told the European Parliament in Brussels on Monday. “If countries, no matter why, diverge, they become inherently weaker, and therefore it’s very difficult to trust them.”

Italian officials are studying scenarios for a lower 2019 budget deficit target after weeks of pressure from the EU, which says the country’s debt must come down.

“I’ve said many times, countries with high debt should reduce debt,” Draghi said. Italy has a debt-to-GDP ratio of more than 130 percent, the highest in the euro area after Greece.

“In reducing debt, they strengthen themselves,” Draghi said.

The standoff has centered on Italy’s planned deficit of 2.4 percent of output in 2019. The resistance to lowering that gap appeared to be waning in Rome on Monday.

For EU officials, a small reduction of the deficit target would likely not sway the Commission’s assessment that the budget breaches EU rules -- especially as the bloc estimates that the deficit would in fact become much higher.

©2018 Bloomberg L.P.