MNI SOURCES: Italy Bets Populist Wave Will Avert EU Sanctions

--Rome Will Tweak Its Budget But Keep Its Fiscal Targets

--Betting On Populist Wins In EU Parliament Vote

By Silvia Marchetti

     ROME(MNI) - Italy is planning tweaks to its 2019 budget to placate Brussels

and stave off an Excessive Deficit Procedure while maintaining its overall

spending goals as it bets that populist victories in May's European

parliamentary elections will weaken the EU's resolve to enforce fiscal rules,

government sources told MNI.

     While the Italians are determined to preserve the bulk of their plans --

including subsidies for poorer citizens, tax cuts and a reduction in the

retirement age, as well as their projected fiscal deficit of 2.4% of gross

domestic product -- they will propose minor fixes to make measures more

efficient. These would be presented as "investments" in areas including

infrastructure and "reforms", rather than spending, potentially allowing them to

take advantage of European rules allowing for some fiscal leeway.

     "Our citizenship wage, the flat tax and the pension reform are untouchable.

We do not intend to water down any of these, nor to reduce our spending goals.

It's just a matter of fixing the details to raise the efficiency of these

measures and be able to give Brussels a clearer picture of how we intend to

accomplish things," said one source familiar with the budget issues.

     --FLEXIBILITY IN EU TREATIES

     "Parliament is currently fixing the framework of the citizenship income by

boosting the efficiency of job allocation centres which are the cornerstone of

the reform," added the source, with links to the Five Stars Movement which forms

one half of the governing coalition.

     "We are confident that next week Brussels will finally see that our

measures are all investments to support growth, productivity and consumption

rates and to create new jobs by helping the Italian jobless find employment.

There's a specific flexibility clause for all this in EU treaties."

     Rome has until next Tuesday to respond to the European Commission after

Brussels rejected its 2019 budget plan, in an unprecedented move.

     One source close to the coalition's far right Lega party argued the clashes

with Brussels had been "too much ado for nothing," given that the 2.4% deficit

target was the maximum spending cap. "It's not paramount that we use of all of

this, we just want to have enough room at a time when all other countries in

Europe are pursuing expansive policies, too. So why all the fuss over Italy?"

     Sources from both governing parties dismissed the risk of an Excessive

Deficit Procedure, arguing that the EC has more to lose from it than Italy does,

and that populist gains in May's European parliamentary elections will help it

avert any EDP sanctions.

     "Let's be serious: even if the EC does move on with an EDP now, in the next

six months it will be a lame duck, with all its decisions weakened by the new

vote," said a Five Stars Movement source. "By the time a new, less

austerity-driven commission is fully in work mode, there will have been

opportunities to review previous decisions against Italy."

     --EU VOTE ALLOWS ITALY TO "BUY TIME"

     The EU voting calendar allows Italy "to buy time, even in the worst case

scenario," noted a government source, "given that during an EDP there are

infinite opportunities to review things, especially if our economy will grow as

we believe it will. This austerity obsession needs to end."

     An EDP against Italy during EU electoral campaigning would only favour

Italy's position by turning it into the "champion" of populism in Europe, warned

the Lega official, as the Five Stars source warned Brussels "to watch its next

steps very carefully."

     "Pushing a wicked pro-austerity fiscal crusade against Italy is bound to

boost the populist consensus across the whole union. This risk, almost a

certainty, is a higher price to pay than turning a blind eye to one country's

budget," the Five Stars source said.

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

[TOPICS: MFIBU$,M$E$$$,M$I$$$,M$X$$$,MC$$$$,MX$$$$,MFX$$$,MGX$$$]