Salvini Says Italy Deficit Target Won't Be Cut Below 2.2%

(Bloomberg) -- Italian Deputy Prime Minister Matteo Salvini said the populist government is not considering cutting next year’s budget deficit target to below 2.2 percent of gross domestic product, effectively only a limited concession to the European Commission in a long-running standoff.

The Rome government is negotiating with the commission after the European Union’s executive arm rejected a budget with a deficit target of 2.4 percent, amid concerns from both Brussels and investors about the impact of costly election promises on Italy’s debt mountain.

Asked if talks are underway for a cut to the deficit target bigger than 0.2 percentage points, Salvini told reporters: “No.” The leader of the anti-migration League said experts are working “day and night” to establish how much money will be needed to guarantee government reforms -- lowering the retirement age, welfare benefits and tax cuts.

“If there is a saving we won’t leave the money there unspent, we will invest it for other spending,” Salvini said, adding that he hoped the pension reform would start in February. “We will go to Brussels with our heads held high showing respect and asking for respect with the objective of making this country grow.”

Investor worries were revived Thursday morning, with Italian bonds falling after demand for five-year debt at an auction fell to the lowest since June.

Salvini’s remarks highlight Premier Giuseppe Conte’s limited room for maneuver. The premier is under pressure from his two euroskeptic deputies Salvini and Luigi Di Maio, of the anti-establishment Five Star Movement. The two populists, after signaling a readiness to compromise, have so far ruled out diluting or delaying their key election pledges.

Conte will seek to pursue the negotiation with the EU, which may lead to fines being imposed on Italy, at this week’s G-20 summit in Buenos Aires, possibly meeting the commission’s Jean-Claude Juncker and Pierre Moscovici.

The budget negotiation has exacerbated tensions within the ruling coalition, with some ministers pushing for more concessions to Brussels. Finance Minister Giovanni Tria said Wednesday the government must take into account “the fears of our European partners” and the concerns of investors.

To contact the reporter on this story: John Follain in Rome at jfollain2@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Kevin Costelloe

©2018 Bloomberg L.P.