Italian budget: Di Maio open to cutting deficit

Italy's populist government appeared open Monday to reducing its draft budget deficit, boosting stocks in Milan on hopes Rome could ease a stand-off with EU officials in Brussels.

Italian budget: Di Maio open to cutting deficit
Luigi Di Maio gestures during a press conference on November 9, 2018 in Rome. Photo: Tiziana Fabi / AFP

The European Commission has rejected the draft budget because it sharply increases spending and the deficit — to 2.4 percent of gross domestic product (GDP) from the previous government's 0.8 percent, which would add to Italy's already massive mountain of debt.

“If, during the negotiating process, the deficit has to be reduced a bit, that's not a big deal,” deputy prime minister Luigi Di Maio told Radio Radicale.

“The important thing is that not one person misses out on the (pledged) measures,” he said in reference to a universal basic income and pension reform promised by the ruling coalition.

Di Maio, head of the anti-establishment Five Star Movement (M5S), which governs in coalition with the far-right League, said the crux of the issue was “not numbers, but people”.

The Milan stock exchange rose sharply on his comments, gaining almost 3.0 percent in morning trades.

The yield on 10-year Italian bonds eased to 3.209 percent from 3.407 percent on Friday, while the spread, or difference between the Italian bond and benchmark German Bunds, narrowed to 285 basis points, the lowest level since October 5.

'Not interested in arguing'

The government has until now refused to budge on its big-spending plans, which it says are key to boosting growth.

But European Commission head Jean-Claude Juncker's efforts to woo Italy's Prime Minister Giuseppe Conte at a meeting on Saturday appeared to be paying off.

“There was no breakthrough but… there seems to be a more constructive attitude,” said Lorenzo Codogno, former chief economist at the Italian Treasury Department.

League head Matteo Salvini, co-deputy prime minister, said Monday the government was committed to using “good sense”.

“We're not interested in arguing with Europe,” he said.

On Sunday he proffered an olive branch to Brussels, saying “no-one is attached to that (deficit number). If there's a budget that boosts the country's growth it can be 2.2 percent or 2.6 percent. The decimal point is not the point”.

The apparent about-turn of a government that had repeatedly and bitterly bad-mouthed Brussels did not go unremarked.

“Those who swore 'we'll never make a deal with the unelected Eurocrats in Brussels', are making a deal with them,” La Stampa's Brussels correspondent Marco Zatterin said on Twitter.

'Slim chance' of compromise

But Codogno warned that the chances of a compromise ahead of the Commission's final decision on the Excessive Debt Procedure (EDP) was “rather slim”.

Brussels had warned Italy that a refusal to review its 2019 plans could activate the procedure, a complicated process that could lead to fines and possibly provoke a strong, adverse market reaction.

“The distance between Italy's position and what would be required by the fiscal framework is so wide that, should the government try to comply, it would effectively change direction completely.

“However, some minor, but still important, changes are possible,” he said.

PM Conte, Economy Minister Giovanni Tria, Di Maio and Salvini are set to discuss the budget late Monday.