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Free AccessREPEAT: MNI SRCS: Italy Eyes Deficit Trim To Ease EU Tensions
Repeats Story Initially Transmitted at 15:45 GMT Dec 3/10:45 EST Dec 3
--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
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.