Italian Minister of the Economy attacks party leaders and pursues deficit target

ROME (Reuters) – The Italian government has decided to target next year's budget deficit to 2.4 percent of gross domestic product, leaders of the party said on Thursday, ending a conflict between the ruling party and the government. Minister of Economy, Giovanni Tria.

This decision is a concession by Tria, which wanted a deficit of only 1.6%, and seems to contradict Italy's promise to the European Union to reduce the deficit decisively to curb its high debt.

The 5-star movement and the League coalition had been demanding a deficit of about 2.4 percent of GDP to finance expensive political commitments, while Tria was slowly changing its position but was trying to stay at less than 2 percent.

"There is an agreement across the government for 2.4%, we are satisfied, there is a budget for change," said Luigi Di Maio, head of the 5 stars, and Matteo Salvini, head of the league, after meetings with Tria.

Italian assets may be under pressure on Friday, as financial markets bet on Tria to resist the pressure of Salvini and Di Maio, both deputy prime ministers.

"The good news is that there is finally an agreement," said Francesco Galietti, head of the Rome-based risk policy consultancy, Policy Sonar. "The most complex part is that, so far, the markets are betting on Tria's ability to control political forces. This hypothesis is collapsing.

Tria was not immediately informed, but government sources said he did not intend to resign.

The full cabinet began meeting around 19:00 GMT to approve the government's economic and fiscal goals for the next three years.

Some coalition voices had publicly told Tria that he had to resign if he could not pay back his spending plans.

The ruling coalition had pushed Tria, an unaffiliated academic from one or the other party, to increase the budget deficit to fund their promises of tax cuts and aid spending. social.

The coalition parties believe that the priority should be to fund policies that include a basic income for the poor and a reduction in the minimum age of retirement, rather than meeting the deficit targets previously agreed with Brussels.

"HISTORICAL DAY"

"Today is a historic day, Italy has changed today," Di Maio told Facebook after the announcement of the deficit target.

Di Maio said it had been agreed that the 2019 budget, due to be presented by 20 October, will set aside 10 billion euros for 5-Star's flagship policy of "citizens' income" going as far as at 780 euros a month for the poor.

Salvini said the budget would also allow people to retire earlier, releasing about 400,000 jobs for young people.

The financial markets have been nervous since the government took office in June, fearing that its spending plans will boost Italy's debt, which is already the highest in the eurozone after Greece's share in the country. GDP – about 131%.

A cap of 2.4% remains within the three percent prescribed by the EU rules, but Italy had promised Brussels to cut the deficit decisively to curb its high debt.

The objectives form the framework for the 2019 budget, which must be approved by the cabinet before October 20.

Tria said on Wednesday that the budget would include party flagship policies, including basic income for the poor and a lower retirement age, but it remains unclear to what extent these measures will be and how they will be funded.

The league and 5-star, rivals for an inconclusive election in March, say they will govern together for a full five-year term and will gradually adopt most of their policies.