October 25, 2018 / 7:04 AM / 25 days ago

Italy's Di Maio reiterates support for euro, says won't change deficit goal

Italian Deputy PM Luigi Di Maio speaks at the 5-Star Movement party's open-air rally at Circo Massimo in Rome, Italy, October 20, 2018. REUTERS/Max Rossi/File Photo

ROME (Reuters) - Italy’s Deputy Prime Minister Luigi Di Maio on Thursday reiterated his country had no plans to leave the single currency, but it would not change its 2019 budget deficit target despite its rejection by the European Commission.

Di Maio, who is leader of the ruling coalition’s 5-Star Movement, also said in a interview with radio 24 that the government was monitoring the banking system, which is coming under stress from the increase in government bond yields.

“Markets are not concerned about Italy not respecting the EU budget rules. Investors are worried about false storytelling according to which Italy wants to leave the euro and the European Union. That is not the case,” said Di Maio.

He added that the 2019 deficit target of 2.4 percent of gross domestic product, which Brussels says is too high, should not be changed.

Financial markets have reacted negatively to the expansionary budget, with bond yields rising to multi-year highs as investors fret over Italy’s defiance of EU fiscal rules and the sustainability of its debt mountain - the highest in the euro zone after Greece.

The Italy/Germany bond yield spread on Thursday retreated to 318 basis points from 323 late on Wednesday, its second widest level since 2013, after Di Maio’s remarks and ahead of a meeting of the European Central Bank.

The spike in Italy’s debt costs may hurt the value of its banks’ large sovereign holdings and eat into their capital, Economy Minister Giovanni Tria said on Wednesday.

Di Maio said the government is monitoring the banking system and that he was confident the spread would fall in the next few weeks.

“In the following weeks we’ll discuss our budget with the European Union and it will be possible to read out the details of our fiscal plan,” he said.

Reporting by Giselda Vagnoni, editing by Gavin Jones

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