The euro fell against all major currencies on Thursday as the Italian government failed to reach a consensus on the 2019 budget.
Italian sovereign bond yields also began to climb, eliminating gains made earlier this week, when markets expected a compromise between Brussels and Rome.
La Stampa reported that Economy Minister Giovanni Tria “was ready to leave,” which the prime minister’s office denied.
Giuseppe Conte’s office also denied that the cabinet meeting would be postponed to avert a crisis. By early afternoon, coalition partners were openly asking Tria to resign, if he cannot or will not back their policies.
The senior coalition partner 5-Star Movement and the right-wing League are pushing Tria to soar up the deficit in order to fulfil a series of flagship campaign promises that include both tax cuts and higher welfare spending.
Tria has committed to delivering on the governments two main flagship policies, namely a minimum wage of €780 a month and a two-tier corporate flat tax rates; however, he has yet to specify how these measured will be financed or how they could be rolled out.
An anonymous source present at the cabinet meeting told public news agency ANSA that the minister of the economy insisted on a 2019 deficit target of 1,6% of the GDP, which is marginally lower than the 2018 1,7% deficit target. Still, that would be double the 0,8% 2019 target set by the previous government.
During the meeting, Tria reportedly was willing to raise the deficit target to 1,9%, that is, marginally under 2%.
Both the Five Star Movement and the Lega told him that if he can’t raise the deficit target “he can go.”
The anonymous sources later went on the record. “If Tria agrees with us, then OK, but if not we’ll find another minister,” Riccardo Molinari told RAI Television. Molinari is the League’s parliamentary chief whip.
The Italian debt-to-GDP ratio is 131%, or two trillion euros. The European Commission insists that Rome must maintain its debt on a downward trajectory.