Italy Wins Temporary Reprieve in Bid to Stop EU Punishment

(Bloomberg) -- Italy’s populist government has an extra week to get its act together to avert an infringement procedure by the European Union.

An EU official, speaking on condition of anonymity because discussions are private, said that no decision on triggering the process would be taken this week, to give Italy more time to come up with sufficient commitments to bring down its deficit and debt.

Italy’s efforts are being jeopardized by divisions within the coalition, with Deputy Premiers Matteo Salvini and Luigi Di Maio clashing over Salvini’s push to slash taxes. Prime Minister Giuseppe Conte and Finance Minister Giovanni Tria have pledged that Italy will respect EU budget rules.

The EU Prepares to Discipline Italy: Here Are the Next Steps

But the official warned that what Italy has offered so far isn’t enough to stop Brussels from starting a so-called excessive deficit procedure, something that would most likely happen on July 2. That’s the latest possible date for the EU’s executive arm to propose the process before finance ministers meet July 8-9.

Italian bonds rallied on the news that the European Commission will hold off on disciplining the nation. Ten-year yields dropped three basis points to 2.12%, close to the lowest level in over a year, while the spread over German peers, a key gauge of risk sentiment, was at 241 basis points, toward the bottom of their recent range. The prospect of more stimulus from the European Central Bank has also helped support Italy’s debt market in recent weeks.

--With assistance from John Ainger.

To contact the reporters on this story: John Follain in Brussels at jfollain2@bloomberg.net;Viktoria Dendrinou in Brussels at vdendrinou@bloomberg.net

To contact the editors responsible for this story: Flavia Krause-Jackson at fjackson@bloomberg.net, Jerrold Colten, Dan Liefgreen

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