November 9, 2018 / 10:29 AM / 7 days ago

UPDATE 1-Italy to confirm 'main pillars' of budget; EU says too optimistic

(Adds details, Dombrovskis)

ROME, Nov 9 (Reuters) - Italy will stand by the main pillars of its budget despite the EU Commission’s request to revise it, Economy Minister Giovanni Tria said on Friday.

The Commission rejected Italy’s fiscal plan for 2019 last month, saying it flouted a previous commitment to lower the deficit and that it did not guarantee a reduction in the country’s debt, the second highest in the euro zone as a proportion of GDP.

The EU executive gave Rome until Nov.13 to present a new budget and may start disciplinary steps against Rome later this month.

Tria said the government was “busy drafting the answer to the European Commission with regards to the most contentious points of the budget.”

But Rome would confirm its “main pillars,” he told a parliamentary hearing.

Tria said the government was committed to respecting a maximum deficit of 2.4 percent of gross domestic product in 2019 and that the economic slowdown made an expansionary budget even more necessary.

In Helsinki, Valdis Dombrovskis, the Commission Vice President responsible for the euro, said the EU executive believed Rome’s fiscal calculations were based on “”overly optimistic assumptions.”

“Basically the assumption is that if they ... increase public spending, it will stimulate the economy and thus will help to reduce budget deficit. We see that this is actually not materialising,” he said.

He reaffirmed that the Commission was considering opening an excessive deficit procedure against Italy if it did not change the budget.

After Tria spoke, 10-year Italian bond yields climbed to 3.46 percent, their highest in over a week, pushing the closely-watched gap over safer German Bund yields back above 300 basis points.

Reporting by Giuseppe Fonte, writing by Giulia Segreti, editing by Giselda Vagnoni and John Stonestreet

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