Italy and the European Commission, the EU's executive arm, have announced a new budget deal after weeks of wrangling over the country's 2019 spending plans.
Italy's government said last week that it would lower its deficit target for next year to 2.04 percent, down from an original target of 2.4 percent. The target was confirmed by the Commision on Wednesday.
"The Italian government has come a long way, only a few weeks ago there was confrontational rhetoric," the European Commission's Vice President Valdis Dombrovskis said Wednesday, meaning that the Commission can avoid launching disciplinary measures against Italy, he told reporters.
"The solution is not ideal but it allows us to avoid an 'Excessive Deficit Procedure' at this stage … One important positive element is that the new budget is based on a plausible economic scenario," he said.
"Credible and sustainable budgetary policies cannot be planned on over-optimistic forecasts," he added, alluding to Italy's original draft budget.
Although Italy has made revisions to its spending plans, Dombrovskis stressed that the composition of the spending still raised concerns, particularly the main expansionary measures — the citizens' income and rollback of pensions reforms (including lowering the retirement age).
"When these measures will fully come into force they will result in higher costs for the years to come. In 2020 and 2021, Italy intends to compensate the costs by … raising value-added tax (VAT). However, we know that in the past Italy has not activated this kind of safeguard. If this happens again large resources will need to be found elsewhere."
The new measures also contain higher taxes on companies and cuts in planned investments, Dombrovskis added, which he said "are not growth-friendly steps, however these could be offset by better use of available EU structural funds."