ROME (Reuters) - Italy’s economy minister said on Tuesday he was confident of reaching an agreement with the European Union over the country’s budget, adding that deficit targets in a draft deal would reflect a “more than prudent” fiscal policy.
Brussels is threatening to open a disciplinary action against Italy over its growing debt pile. The anti-austerity coalition government in Rome disputes the economic forecasts on which the European Commission is basing its projections.
Economy minister Giovanni Tria, seen as a moderate voice within the government, said he saw no obstacles to a deal with the EU.
Tria confirmed Italy would cut its 2019 fiscal deficit target to around 2.1% of gross domestic product from a 2.4% goal it set in April.
The coalition of the anti-establishment 5 Star Movement and the far-right League party is due to formalize the new target on Wednesday, and also to discuss what deficit goal to set for 2020.
“For a zero growth economy like Italy” a deficit of around 2.1% represented “a more than prudent fiscal policy”, Tria told a conference in Rome.
Under the EU’s excessive deficit procedure, Italy could be forced to quickly tighten fiscal policy or face possible fines.
But minutes of an EU meeting this week showed the executive Commission could give Italy until January to make policy changes, considered a relatively long deadline.
Brussels, which has forecast Rome’s deficit at 2.5% this year, has not said whether a 2.1% goal would suffice to avoid the procedure, and neither has it spelled out its demands of Italy in 2020.
Tria said Italy aimed to keep its deficit low in future years and cut its debt by reducing spending rather than raising taxes. “On this basis, we feel that Italy is substantially compliant with European fiscal rules,” he said.
Political sources said the Commission’s main focus was on next year, when the government wants to avoid a scheduled increase in value-added tax and introduce income tax cuts.
In remarks that may complicate talks with Brussels, League leader Matteo Salvini said on Tuesday he was not willing to make any deficit commitments for 2020 and complained that Brussels constantly asked for “acts of subjugation” from Italy.
Some commentators suspect Salvini may be using the clash with the EU as a trigger to bring down the government and seek early elections to capitalize on the League’s growing popularity.
At European parliamentary elections on May 26, it doubled the votes of 5-Star, which now fears an early election.
5-Star leader Luigi Di Maio warned on Tuesday that a snap election would deliver a government of technocrats like the one led by former EU commissioner Mario Monti in 2011, which passed harsh austerity measures.
He told Il Corriere della Sera daily he believed the EU would let Italy raise its deficit to helped the economy.
Additional reporting by Giuseppe Fonte, Editing by Catherine Evans