Italy to cut deficit from 2020

Ruling coalition’s stand on higher deficit had put it in confrontation with the European Union

Italy’s populist government will cut its budget deficit targets from 2020, Economy Minister Giovanni Tria said yesterday, after investors sold off Italian assets and European Union ministers criticised its plans to jack up spending next year.

The ruling coalition last week said it planned to run a deficit of 2.4 per cent of gross domestic product (GDP) next year, tripling the previous government’s target. It also said that the deficit would stay at that level through 2021.

The announcement unnerved markets and prompted criticism from European Commission The coalition came to power in June promising to slash taxes and boost welfare spending, and says an expansionary budget next year will boost economic growth and thereby curb Italy’s debt — the largest in Europe after Greece at about 131 per cent of GDP.

President Sergio Mattarella hopes there will be as little deficit spending as possible, but is not trying to dictate numbers to the government, a source close to the president said yesterday. officials but 5-Star Movement leader Luigi Di Maio was defiant on Tuesday, pledging not to backtrack “by a millimetre”.

However, government sources told Reuters yesterday the aim now was to reduce the deficit and to no higher than 2.2 per cent of GDP in 2020 and 2 per cent in 2021, and possibly lower. Next year’s target remains 2.4 per cent of GDP, they said.

The news sent Italian government bond yields down, and overnight the euro gained against the dollar. Italian bank stocks jumped by as much as 3 per cent, but later settled at a 0.8 per cent gain.

Speaking at a meeting of Italy’s largest employers’ lobby, Tria confirmed that the fiscal shortfall would be put on a downward path after next year.

“The deficit will increase compared with the previous forecast in 2019, but then there will be a gradual reduction in the following years,” he said.