September 19, 2018 / 9:52 AM / 2 months ago

Italy coalition urges econ minister to be more elastic on deficit

* Econ minister wants deficit below 2 pct/GDP - govt source

* Ruling parties seek deficit of 2-2.5 pct/GDP - sources

* Deadline for govt spending targets is Sept. 27

By Steve Scherer

ROME, Sept 19 (Reuters) - Italy’s populist ruling coalition called on Economy Minister Giovanni Tria on Wednesday to allow greater deficit spending in next year’s budget in order to make good on flagship campaign promises.

Pressure on Tria has increased as a Sept. 27 deadline approaches to set the deficit and debt targets for next year’s budget, which must be presented to parliament by Oct. 20.

Italy’s public debt is the highest in the euro zone after Greece’s, and markets are concerned about the prospect of it rising further. Tria is seen as the bastion of market discipline against the demands of the ruling anti-establishment 5-Star Movement and far-right League party, which took office in June.

“We only ask that minister Tria not get hung up on decimal points, that he show a minimum of flexibility,” Giancarlo Giorgetti, a cabinet undersecretary and high-ranking League official, said in an interview with la Repubblica newspaper.

Tria wants to keep the 2019 budget deficit below 2 percent of gross domestic product, according to a government source, while sources from 5-Star and the League have told Reuters they want to see it go as high as 2.5 percent and not below 2 percent.

This year’s deficit goal is 1.6 percent and the target for 2019 set by the previous centre-left administration is 0.8 percent. However, Tria — an academic who is not affiliated with either ruling party — has already said this will be raised significantly, partly because the economy is slowing.

“I’m tired of having to stick to parameters set by others,” League leader Matteo Salvini said on Tuesday during on a late-evening TV talk show, referring to public finance targets agreed between the previous government and the European Commission.

Speaking of the gap, or spread, between Italy’s 10-year bond yield and that of the safer German counterpart, Salvini said: “I’ll take care of the spread. I eat bread and spread, and I’ll keep it low.”

The spread was at 233 basis points on Wednesday, sharply down from peaks around 300 in May and June. However, it is still about 100 points higher than in early May before the ruling parties began negotiating their government “contract”.

Salvini said he did not believe the spread depended on the deficit target, but on the credibility of the government’s policies and their ability to boost growth.

On Tuesday, after denying he had sought Tria’s resignation, 5-Star leader Luigi Di Maio said: “I expect the economy minister of a government for change to find the money for Italians who are momentarily in economic difficulty.”

While at loggerheads with Tria, both Salvini and Di Maio on Tuesday pledged to keep the deficit under the European Union’s 3 percent of GDP upper limit.

The ruling parties are seeking to pack at least portions of their main campaign promises into next year’s budget, including a basic income for the poor, tax cuts, and a lowering of the retirement age. (Additional reporting by Giuseppe Fonte Editing by Peter Graff)

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