Italian government compromises over controversial budget

19 Dec 18

The Italian government appears to have reached a compromise with Brussels following months of disagreements over its spending plans.

The Italian economy ministry announced yesterday an informal agreement had been reached with the European Commission over its budget proposals, after agreeing to lower its 2019 deficit.

Brussels asked the populist government to revise its budget proposals – the first time it has taken such an action - because of the country’s high national debt.

For over a month, Italy stood firm and refused to change its spending plans. But earlier this month, it looked like Italy would back down.

Deputy prime minister Matteo Salvini said in a brief statement: “Great satisfaction for the result achieved.”

He did not provide any details of the deal.

The agreement is expected to be made formal later today when it gains the approval of officials in Brussels.

It was reported earlier this week that Italy would slash its growth forecasts and revise its spending plans for next year as it tries to persuade the European Union to back its spending plans.

The government will reduce its gross domestic product outlook for 2019 to 0.9% or 1% from 1.5%, Bloomberg reported, citing a Treasury official. 

Prime minister Giuseppe Conte agreed a deal on Monday with his government to submit a revised budget proposal to Brussels in the hope of avoiding a disciplinary procedure. This is expected to include a lower deficit target for 2019 – to 2.04% of GDP from 2.4%.

According to Bloomberg reports on Monday, the government also identified about €3bn of additional money, without making it clear where they will come from, and lowered the cost of the new welfare programme payments to €7.1bn from €9bn.

The welfare programme includes reversing plans to raise the retirement age and a guaranteed basic income for poor families. The government’s plans also include tax cuts and further economic reforms.

The government faces a year-end deadline to get the spending programme through parliament.

Salvini told national television on Monday: “I hope Brussels will show common sense. They count even the hair in Italy’s nostrils and they let Macron’s France do whatever it wants.”

He added the budget would be “within limits that should please the EU”.

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