Italy gets support from Germany over budget spending plan

  • Italy's populist government is at odds with the European Commission in Brussels over its 2019 budget.
  • Rome has gained some surprising support from the German finance minister.
  • Italy has until the end of Tuesday to resubmit its budget to Brussels.

Germany's finance minister has told CNBC that he can understand some of the reforms that Italy says it wants to spend its budget on.

Italy's populist government is at odds with the European Commission in Brussels after submitting a budget proposal for 2019 that incurs a deficit of 2.4 percent of gross domestic product (GDP). The previous Rome administration had submitted a far less costly 0.8 percent deficit proposal.

For the first time in history, a draft budget proposal from an EU member has been rejected by commissioners, but on Tuesday the German Finance minister, Olaf Scholz, told CNBC's Annette Weisbach that there were some aspects of Italian spending plans that anyone could understand.

Speaking at the SZ Wirtschaftsgipfel Economic Summit in Berlin, Scholz said a complete lack of support for long-term unemployed in Italy was "a bit astonishing" and a change of policy in that area could be considered.

"If they, the Italian government is working on questions like this, we can understand this," said Scholz.

The finance minister cautioned however that in doing this, Italy would also be expected to be very cautious with its budget.

"If you have a very high amount of sovereign debt it is absolutely necessary that you are cautious and this is what the Italian government will have to be," he said.

Italy is expected to resubmit its budget on Tuesday but CNBC has learned that the Italian Finance Minister, Giovanni Tria, won't be meeting with the country's Prime Minister Giuseppe Conte until late in the evening. CNBC has also learnt from sources that the Deputy Prime Ministers Matteo Salvini and Luigi Di Maio will attend that meeting.

Brexit

Scholz also told CNBC on Tuesday that European ministers were "working very hard to get an agreement between the EU and U.K." on a Brexit withdrawal deal.

Although reports suggests a document is almost complete, the U.K. has yet to finalize and present a withdrawal proposal to its EU counterparts.

There exists deep doubt that the U.K. terms of withdrawal will be acceptable to its own parliament, even if Brussels were to agree.

That has raised the spectre of a "no deal" Brexit which would see Britain default to World Trade Organization (WTO) rules, potentially harmful to countries on both side of the debate.

Scholz said Germany was prepared for a hard Brexit but was working to avoid it.