October 22, 2018 / 4:10 PM / a year ago

Exclusive - Eurogroup's Centeno confident of budget deal between Rome and EU

LISBON (Reuters) - Eurogroup head Mario Centeno said on Monday the latest messages from Rome and the European Commission over Italy’s 2019 budget are “very positive” and he expects agreement to be reached on the blueprint.

Portugal's Finance Minister and Eurogroup President Mario Centeno attends an eurozone finance ministers meeting in Brussels, Belgium July 12, 2018. REUTERS/Francois Lenoir

“That is what I expect,” Centeno told Reuters in an interview, referring to the likelihood of such an agreement.

Italy told the commission on Monday it would stick to its contested 2019 budget plans in defiance of European Union fiscal rules, but promised not to inflate its deficit any further in the years ahead.

Centeno said the response, which followed the commission’s warning letter to Rome last week, was “constructive”.

Italy’s government, comprised of the right-wing League and anti-establishment 5-Star Movement, has alarmed investors with its spending plans, sending its bond yields sharply higher in the past few months.

Centeno said all euro zone countries need to stick to the rules of belonging to the euro zone.

“We obviously have processes running in every country with their democratic dynamics, which have to conform to the rules of belonging to the euro area,” Centeno said. “We cannot be complacent about this, but we also don’t need to be dramatic.”

He pointed to his own Socialist government in Portugal as an example of an administration that won the confidence of markets and investors after it made clear it intended to stick to European budget rules after coming to power in 2015.

Portugal’s Socialist government has won praise for cutting its budget deficit and delivering strong growth after the country’s 2010-14 debt crisis. Some investors were initially skeptical about the government, not least because it relies in parliament on support from two far-left parties.

Portugal’s 2019 budget forecasts a reduction in the budget deficit to 0.2 percent of GDP from 0.7 percent in 2018.

Centeno, who took over as head of the powerful Eurogroup of euro zone finance ministers this year, said the euro zone was now “much more robust, resilient and resistant” after far-reaching reforms in the past few years.

“I would be very surprised if one (Italian) budget caused drama within the euro zone and that its institutions were unable to manage this without big problems,” he said.

He said growth remained robust in the euro zone, despite risks to economic activity in the past few years from general elections in Germany and France, as well as the Brexit vote.

“They (uncertainties) have not materialised in a significant slowdown in global economic activity,” he said.

He said he remained “confident” that a deal on Brexit will be struck between London and Brussels and would not speculate about the possibility of failure.

Reporting By Axel Bugge; Editing by Toby Chopra

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