August 20, 2018 / 4:34 PM / in 3 months

Citing Genoa bridge, Italian official doesn't rule out 2019 deficit breach

ROME (Reuters) - A top Italian government official on Monday declined to rule out that next year’s budget deficit could be above the EU ceiling, linking the issue to last week’s collapse of a motorway bridge.

Under European Union rules, member states are supposed to keep their deficits within 3 percent of gross domestic product, but Italy’s new coalition government has big spending plans including on infrastructure.

Asked if he could exclude Italy breaching the limit in 2019, cabinet undersecretary Giancarlo Giorgetti replied: “I’m not ruling out anything.”

Giorgetti, a member of the right-wing League party, told SkyTG24 television that the collapse of the bridge in Genoa on Tuesday that killed 43 people had confirmed that infrastructure - from school buildings to aqueducts and unsafe river banks - needed urgent renewal.

“We need a major plan of investments in public works,” Giorgetti said, adding that the government would launch a “difficult negotiation” with the EU to have these investments excluded from budget deficit calculations.

League leader and deputy Prime Minister Matteo Salvini on Monday told online newspaper Quotidiano.Net the government planned “a big public works program like the one launched by President Trump”.

The anti-establishment administration that took office in June is due to issue new economic and fiscal targets by the end of September, before the 2019 budget is presented by Oct. 20.

The current 2019 deficit goal, inherited from the previous center-left government, is 0.8 percent of GDP, down from a targeted 1.6 percent this year.

The new government made up of the League and the 5-Star Movement has already made clear the 2019 target will be raised, but has not said by how much.

It cites a slowing economy and the need to fund promised tax cuts, increase spending on welfare for the poor, and to scrap an increase in sales tax pencilled in by its predecessors.

Financial markets are nervous that the spending program of the coalition will push up a public debt which, at 132 percent of GDP, is the highest in the euro zone after Greece.

Italian stocks and bonds have repeatedly come under pressure since the government took office, but Salvini said on Monday it would not be deflected from its program.

“This government wants to help Italians and I think it isn’t liked by many ...representatives of finance and technocracy that wanted to exploit Italy and obtain cheaply the last companies left in this country,” he told reporters in Milan.

“They won’t manage it and so we will resist (rises in bond) spreads, speculation, (debt) downgrades and attacks.”

Credit agency Moody’s, which is reviewing Italy’s Baa2 rating for a possible downgrade, said on Monday it was extending the review until most likely “the end of October at the latest”, from a previous deadline of Sept. 7.

The agency said it needed more time to get “greater clarity on the country’s fiscal path and reform agenda.”

Its counterparts Fitch and S&P Global review Italy on Aug. 31 and Oct. 26, respectively. Both these agencies have a stable outlook, making a downgrade less likely.

Additional reporting by Angelo Amante and Ilaria Polleschi; editing by David Stamp and John Stonestreet

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