BRUSSELS--The European Commission and Italy are working to reach a deal quickly on the country's 2019 budget, the two sides said on Thursday, after Rome offered to cut its deficit target to avoid disciplinary action by Brussels.
The European Commission had rejected the previous draft budget which targeted a deficit equal to 2.4 percent of Italy's annual gross domestic product, but after weeks of reciprocal attacks Prime Minister Giuseppe Conte announced on Wednesday he was lowering the goal to 2.04 percent.
European Economic Affairs Commissioner Pierre Moscovici said he had held an "extremely constructive meeting" in Brussels with Italian Economy Minister Giovanni Tria on Thursday. "We are working with the aim to reach a common position ... we want to do it quickly," Moscovici told reporters, adding that Italy had made a "significant" effort towards a compromise.
Meetings will continue in the coming days as Tria and his team of experts plan to remain in Brussels until a deal is done, possibly by Monday to allow the parliament in Rome to adopt a revised budget before the end of the year, EU and Italian officials said.
Moscovici's remarks came a day after Conte presented the revised budget to Commission President Jean-Claude Juncker which the EU executive considered as "good progress". The Commission had taken the first steps in recent weeks towards opening a disciplinary procedure against Rome that could keep Italy under market pressure for a prolonged period and also lead to financial sanctions.
"There is a common will to reach a solution," Tria's spokeswoman told reporters after the meeting with Moscovici.
Italian two-year bond yields hit their lowest level in six months on Thursday as a budget deal seemed closer with Brussels, and the Italy/Germany 10-year spread was at its tightest since late September, at 261 basis points, down about 80 points from highs reached in October. However, it remains unclear how Italy intends to reduce its deficit, since the government continues to say its most expensive spending measures on pensions and welfare handouts will not be changed.
Conte said on Wednesday the government had committed to sell more assets than initially foreseen to reduce the deficit. Officials pointed out that the sales could concern liquid assets, such as shares in companies.
A further small reduction of the headline deficit target is also not excluded. Italy should also cut its structural deficit, which excludes one-off expenditures and the effects of the business cycle, instead of increasing it, as the government planned to do in its original budget.
Moscovici said efforts were needed on both sides. Brussels could increase the amount of Italy's deficit spending that is allowed under EU rules to face emergencies, like reconstruction of a collapsed bridge in the port city of Genoa and infrastructure investments to prevent natural disasters.
But these expenses, so far estimated at 0.2 percent of output, must be comprehensively detailed, an official said.
