Italy sends smoke signals to markets that it will play by Europe's budget rules

  • Italy's economy minister is expected to prevent Italy's 2016 budget deficit from rising above 1.6 percent of the country's gross domestic product (GDP), an Italian newspaper reported Monday.
  • Economy Minister Giovanni Tria is due to meet Prime Minister Giuseppe Conte and joint Deputy Prime Ministers Luigi Di Maio and Matteo Salvini on Monday to discuss the country's 2019 budget — its spending plans and growth targets.
  • Italy is due to present its 2019 budget to the European Commission for approval shortly.

Italy's economy minister is expected to prevent Italy's 2016 budget deficit from rising above 1.6 percent of the country's gross domestic product (GDP), an Italian newspaper reported Monday.

Economy Minister Giovanni Tria is due to meet Prime Minister Giuseppe Conte and joint Deputy Prime Ministers Luigi Di Maio and Matteo Salvini on Monday to discuss the country's 2019 budget — its spending plans and growth targets.

Members of a political party hold an Italian flag in Rome, Italy.
Michele Spatari | NurPhoto | Getty Images
Members of a political party hold an Italian flag in Rome, Italy.

Italy is due to present a draft version of its 2019 budget to the European Commission for approval shortly.

It is being closely watched by financial markets, European lawmakers and the Italian public alike to see if the government will stick to plans that include increasing welfare spending, reducing taxes and scrapping pension reforms that had increased the retirement age.

Italian newspaper Corriere della Sera reported on Monday that the goal of the meeting on Monday was to start "to pin down some numbers" and decide what funds to allot to the different measures being considered, Reuters said.

The European Commission — the executive arm of the EU which has to check and approve draft budgets of countries in the euro zone — requires government spending to not exceed 3 percent of a member country's gross domestic product (GDP).

The newspaper reported that Economy Minister Tria, seen as a moderating influence in government, is set on preventing the 2019 budget deficit from rising above 1.6 percent of GDP, a move that could avoid a confrontation between Italy and European lawmakers.

The newspaper calculated the government needs either 10 billion euros ($8.58 billion) in additional revenues or lower spending to hit the 1.6 percent goal. The figure must rise to 15 billion euros if the government wants to adopt at least some of the measures pledged by the coalition's parties without jeopardizing the 1.6 percent ceiling, the paper said.

Financial markets were roiled when Italy's coalition government, made up of the anti-establishment Five Star Movement and right-wing Lega party, announced their controversial spending intentions in June this year.

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While the spending plans, including a pledge to introduce a universal basic income, were popular with Italian voters fed up with austerity measures, investors feared the measures would increase Italy's budget deficit (the amount by which its spending exceeds its tax receipts) and would increase its already large debt pile.

Rome's government debt stands at 130 percent of GDP, just below Greece's.

Corriere said Prime Minister Giuseppe Conte was expected not to challenge a 1.6 percent deficit limit although it could be more difficult to convince the two deputy prime ministers, who favor more spending.