ROME (Reuters) - Italy’s government will cut “a few billion” euros from its two main reforms in order to hit the new deficit target it proposed to the European Commission, Deputy Industry Minister Dario Galli said on Thursday.
Prime Minister Giuseppe Conte met EU Commission President Jean-Claude Juncker on Wednesday and offered to lower Italy’s deficit target for next year to 2.04 percent of gross domestic product from 2.4 percent previously to avoid disciplinary action from the EU.
“A few billions (in savings) compared to the original theoretical forecasts will come from the realistic implementation of the (government’s) most significant political measures,” Galli told broadcaster La7, referring to income support and the introduction of a lower retirement age.
After meeting Juncker in Brussels, Conte did not detail how the deficit would be cut. Conte said only that the government would sell more state assets than initially planned and that the economy would grow more than expected next year.
Late on Wednesday, Conte had said that planned higher spending on pensions and welfare handouts would be unchanged. But Galli suggested that delaying the implementation of the measures would limit their overall cost.
Italy’s ruling coalition, comprised of the anti-establishment 5-Star Movement and the right-wing League, had earmarked 9 billion euros ($10.2 billion) to provide income support to the poor and 7 billion euros to allow 62-year-old workers with 38 years of pension contributions to retire.
“The original 2.4 percent deficit target was calculated as if the citizen income and the lower retirement age were in force since January 1. But both measures need time to be implemented,” Galli said.
Even if the budget draft has already been approved by one of the two houses of parliament, the numbers and timings of the citizen income supported the 5-Star and the pension reform sponsored by the League have not been unveiled yet.
The coalition’s two main figures, League leader Matteo Salvini and 5-Star chief Luigi Di Maio, had insisted their main election promises should not be watered down or delayed. Less money for their key measures could fuel tensions between them.
The deputy prime ministers published a joint statement on Thursday to express “full confidence” in the prime minister’s budget proposal and to say that the two key reforms were intact.
“We are people with common sense and above all we stick to our promises by preserving the citizens’ income and the pension reform,” Salvini and Di Maio said.
In Paris, European Union Economics Commissioner Pierre Moscovici told the French Senate that Italy and the EU were having constructive talks regarding Rome’s economy and deficit situation, but there was still work to be done.
Barclays analyst Fabio Fois said the EU was now less likely to trigger an Excessive Deficit Procedure (EDP) in relation to Italy.
“Furthermore, even if an EDP is launched we think the Italian government’s revision makes it more likely that any EU move would be gradual and mild,” Fois said .
The prospect of ending months of wrangling with Brussels pushed down Italian bond yields, with the Italy/Germany 10-year bond yield spread at its tightest since September.
Reporting by Giselda Vagnoni; editing by Mark Heinrich and Keith Weir