MNI SOURCES: Italy Eyes Deficit Trim To Ease Tensions With EU

--Italy New Deficit Target Likely Between 2%-2.2%; Lower Would Be "Absurd"

--Italy Move To Cut Deficit Target To Soothe Nerves In Brussels, Bond Mkts

By Silvia Marchetti

     ROME (MNI) - Italy's government is expected to amend lower its deficit

objective for 2019, although any suggestions the new target could be lower than

2% are "absurd", sources close to the budget talks told MNI.

     As an olive branch to Brussels and to sooth nerves in roiled financial

markets, Rome is expected to aim at a new deficit target of between 2.0% and

2.2%, down from the 2.4% target set in the recent 'People's Budget'.

     Any fixes to the budget law have certainly been partly influenced by rising

tensions with Brussels and the increasing bond yield spreads, sources said. 

     "Sure, we must show Brussels that we have somehow listened to their

reprimands to boost our reputation, but these minor budget fixes take into

account domestic reasons. Recent financial tensions, fuelled by market

speculation, are weighing on Italian firms and banks," a Lega source said. 

     --AVOID BRUSSELS EDP

     In an attempt to avoid an EU excessive deficit procedure (EDP), the Italian

government will look to shift planned spending to investment.

     "The possibility of cutting it below 2% is pure nonsense. We really need

all that 2.4% deficit to fund our measures but if we must trim the deficit, it

would be just a minor, slight reduction," said a source from the governing 5

Star Movement.

     "There might be some fixes as to how this deficit is spent, and the extent

it could be reclassified as investment, but the bulk of the budget law remains,

especially now that growth is slowing across the whole union," the source added.

     In order to win the European Commission over, some E8 billion would be

needed to cut the deficit into the 1.9%-2% range, which, according to a Lega

source, would push the government into a "fiscal trick", shifting spending "from

structural to nominal deficit".

     The Lega source added it would be "absurd", solving the problem for this

year only, while the citizenship wage, the pension reform and flat tax are

structural reforms, adding "so why classify them as one-off spending just to

save face?" 

     -JUST A TRIM

     Both Lega and 5 Star are still in talks to set a new deficit target and

help ease tensions with Brussels. However, both parties are unwilling to go

below 2%, with the Lega pushing for just a 0.2% cut. A final deal is expected by

Wednesday. 

     A close aide to deputy prime minister and Lega party head Matteo Salvini

told MNI that the speculation of a fresh deficit target below 2%, set to please

Brussels, were fuelled by "fake news". 

     Salvini's aide also ruled out any possibility of changes to the planned

pension reform. 

     Along with pushing the EC for fiscal leeway to allow relief spending

following the recent floods, Rome will aim to rationalize spending plans towards

infrastructure spending that would also qualify for the EC's investments clause,

sources explained.

     Special committees are already in place, analysing where costs can be cut,

including at now redundant state bodies.

     Several 5-Star Movement sources suggested to MNI that there could also be a

delay in the introduction of the citizenship wage until June 2019, freeing up

some resources until the network of jobcentres is in place.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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