ROME — The game of chicken between Rome and Brussels over the Italian budget could soon be over. Because Rome is about to give in.
Italys populist ruling coalition is dialing back its spending plans to avoid triggering disciplinary action by the European Commission, according to two Italian officials in Rome briefed on the ongoing negotiations.
Rome proposed running a 2.4 percent deficit next year, putting it on a collision course with Brussels, which had threatened to slap Italy with an excessive deficit procedure as early as December 19, potentially costing the country up to €9 billion in sanctions. In a revision to its plans, the government intends to drop the proposed deficit for 2019 to 2 percent, according to the two officials.
“We didnt discuss numbers but were working on a solution — which is both in Italys and the EUs interest — to avoid the excessive deficit procedure … were in the same boat,” Prime Minister Giuseppe Conte said on the sidelines of his meeting with European Commission President Jean-Claude Juncker and Economic Affairs Commissioner Pierre Moscovici at the G20 in Buenos Aires.
According to the two officials, the European Commission gave the Italian government a little leeway “provided the GDP-to-deficit ratio doesnt go over 1.95 percent.” Italy had earlier agreed to keep the deficit at 1.8 percent.
Italian Deputy PM Matteo Salvini said he supports Prime Minister Contes handling of the budget talks. | Credit: Alberto Pizzoli/AFP via Getty Images
For days, top Italian officials have repeated they arent “fixated on decimal numbers” and signaled they are open to revisions. But on Monday, Interior Minister Matteo Salvini, head of the far-right League party, told reporters “the EU cant ask for a 1.9 percent deficit.”
In a joint emailed statement on Sunday night, Salvini and his coalition partner Labor Minister Luigi Di Maio, leader of the anti-establishment 5Stars, said: “We are in good hands with Prime Minister Conte leading the negotiation.”
Keeping the 5Stars and the League on board with spending cuts might prove to be the most difficult part of the prime ministers task.
The “substantial rework” of the budget demanded by the Commission would translate into less funding available for the ruling coalitions flagship measures — a limited universal basic income and a pension overhaul — which are due to start in early 2019, according to the governments stated plans.
Salvini and Di Maio have said they wont give up on either of them.
Contes job isnt easy. As Italys negotiator-in-chief, he has been tasked with avoiding a potentially catastrophic excessive deficit procedure while at the same time helping the government deliver on its promises to voters. According to the latest opinion polls, 68 percent of Italians want the government to rework the budget to avoid the collision with Brussels.
Two center-right MPs in Rome, who discussed the matter with top League officials and spoke on condition of anonymity, said “Salvini has passed the ball to Conte, and hes willing to play along to avoid further problems within his own party.”
The MPs said top League officials are worried that the basic income pledge, which would mainly target Italians living in poverty in the south of the country, would alienate the partys base in northern Italy.
Meanwhile, 5Star officials privately insist they are keen on avoiding a disciplinary procedure and want to “engage in a constructive dialogue with the Commission” but also want the basic income and the pensions reform to be implemented as soon as possible.
“Its a work in progress,” one 5Star official said.
On Monday, eurozone finance ministers will scrutinize individual country budgets, including Italys. The ministers will be the ones to decide, at a later date, whether an excessive deficit procedure should be launched. On the sidelines of the meeting, Moscovici confirmed talks with Italy “are going in the right direction.”
“Well eventually avoid the disciplinary procedure, but the government must take things one step at a time without handing Brussels too many concessions or they will look weak in the eyes of voters,” one technocrat at the Italian Treasury said.
Bjarke Smith-Meyer contributed reporting.
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