Flagship policies will move forwards, but the Italian 2019 budget will remain below 2%, according to Italian media reports.

Deficit compromise

Markets hailed the willingness for a compromise on Tuesday, September 25.

The spread between Italy’s 10-year bond and the German Bund closed by 11 points to 233 basis points on Tuesday, down from 2.44 points on Monday.

The spread between Italian and German bonds shot beyond 300 points in May amid concerns about fiscal expansionism by the incoming government.

Last week the Italian government’s policy was a matter of speculation. The Economy Undersecretary Massimo Bitonci told the public news agency ANSA that the 2019 Italian deficit would reach 2-to-2,2%. The leader of the Lega, Matteo Salvini, talked initially of 2,9% and then 2,5%. The Minister of the Economy, Giovanni Tria maintained a commitment of 1,6%.

There was more clarity on Monday, September 24, when Prime Minister Giuseppe Conte committed to a deficit below the “psychological threshold” of 2%.

That was accompanied by an article published by La Stampa on Tuesday, suggesting there was an agreement that the 2019 budget deficit target will not exceed 1.9% of GDP. However, the budget will include a €36bn-euro investment package touted by Europe Minister Paolo Savona.

What is unclear what are the policy compromises on which this ambitious deficit objective is founded..

In a TV interview, deputy prime minister Luigi Di Maio committed to the rollout of a citizens’ income of €780 from March 2019.

All will be clear by Thursday, September 27, when Italy submits its draft 2019 budget. A final budget will be submitted to Brussels on October 15.

Changing climate in Brussels

The Economic Affairs Commissioner Pierre Moscovici has often pushed Rome towards a compromise. But, his tone was quite different on Tuesday.

From New York, Moscovici reiterated the French position for a euro-zone budget that would address “the populist challenge” and “the burning question of inequalities.”

Speaking to Reuters on the sidelines of the United Nations General Assembly, Moscovici expressed concern for the threat of populism for democracy, the rule of law, and European values. He urged for progress in European integration, urging for a eurozone budget that would help support reforms and strengthen convergence between member states.

 “The European crisis is no more an economic crisis; it is an inequality crisis; it is a political crisis; it is a crisis of delivery, Moscovici said.

However, when the discussion focused on Italy, Moscovici reiterated that it was in Italy’s national interest to reign over its budget deficit and public debt.