June 21, 2019 / 12:47 PM / in a month

In blow to EU, Italy's PM backs tax cuts, cautious on euro zone reform

BRUSSELS (Reuters) - Italian Prime Minister Giuseppe Conte said on Friday he was in favour of a broad reform that would cut taxes but also reduce tax evasion, in remarks that may complicate talks with the European Commission over Rome’s growing debt.

Italian Prime Minister Giuseppe Conte speaks during a news conference after the European Union leaders summit in Brussels, Belgium, June 21, 2019. REUTERS/Francois Lenoir

Conte said he agreed with Deputy Prime Minister and far-right leader Matteo Salvini, who is calling for significant tax cuts and has threatened to bring down the government if they are not agreed .

“Salvini’s ideas (on tax cuts) are the same as mine, but I am perhaps more ambitious,” Conte told a news conference, adding the reform should be based on the principle that taxes should be lower, but everybody should pay them.

Brussels wants Italy to reduce its debt this year and next and has opposed wide tax cuts if they are not offset by new revenues or spending reductions - options that Rome has so far dismissed.

In another blow to his EU partners, Conte said he could not conceive of progress in euro zone reforms unless Italy’s interests were properly taken into account.

Leaders of the 19-country currency bloc agreed on Friday at a summit in Brussels to move ahead with a small euro zone budget and a reform of the euro zone rescue fund, the European Stability Mechanism, that would give it more powers to handle financial crises.

Italy wanted progress on the establishment of a common insurance scheme for bank depositors but no agreement is in sight on that as Germany and other wealthier states fear it could be used to bail out banks in states with shaky finances.

The ESM reform is important to Berlin as it would increase the bloc’s monitoring powers over countries with economic imbalances and also facilitates the restructuring of governments’ debts in crises - a potential cause of higher yields for highly indebted nations.

“The three projects are interlinked,” Conte said after the summit. “It’s obvious that if you make a concession, then you have to get something in exchange,” he added.

“I cannot imagine that a reform supported by some countries go ahead, while that backed by Italy is blocked.”

Leaders have set a December deadline to make progress on the euro zone reform.

Reporting by Francesco Guarascio; editing by John Stonestreet; Editing by Toby Chopra

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