The standoff between the European Commission and the Italian Government may reach a resolution as early as next week after Italian President Giuseppe Conte made clear that his government would send a revised version of its 2019 budget to the European Commission by next week, but did not commit to a specific deficit target other than to say it will be lower than the current 2.4%.

“Right now if I am able to recover some funds, tweak the final figure, change a few things, but it doesn’t mean that I am backtracking,” said Conte.

Rumours of a compromise have had a positive effect on Italian bond yields, while credit rating agencies Moody’s and S&P Global have stopped short of downgrading Italian debt as they await news of the revised plan.

The 2.4% has been labelled by the European Commission as an “unprecedented” breach of the fiscal compact, with Brussels demanding a much more ambitious target with the Commission threatening to go ahead with excessive deficit proceedings that would force Italy to pay a fine equal to 0.2% of its GDP.

Negotiations on the revision of the Italian budget were held in Brussels by Economy Minister Giovanni Tria on December 3. European Commission Vice-President Valdis Dobrovskis emerged from the meetings saying there was a need for “considerable correction” below 2.4% but did not mention a specific target. His comments were followed up by European Economic Affairs Commissioner Pierre Moscovici who demanded that a credible revision of the budget needed to be proposed by the Italian government.

Italy’s Secretary of the Council of Minister Giancarlo Giorgetti has said up to €4 billion in savings will be achieved by amending the law on the lowering the age of retirement and limiting the scope for a minimum guaranteed income for all citizens.

However, Deputy Prime Minister Luigi Di Maio is committed to a “quota 100” reform, which specifies that people can start claiming a state pension when their age and number of years of contributions add up to 100. Italy is also on course to guarantee a minimum income for every Italian citizen beginning in February 2019.

Meanwhile, Italy’s economic fundamentals continue to deteriorate. By the end of November, the Italian economy was in negative growth territory at 0.1%. Brussels may demand further austerity measures for Italy, which would add fuel to the fire in an increasingly bitter standoff with Rome.

The Italian government’s current budget forecast is founded on growth projections of 1.5% for 2019, which is far more ambitious than the forecasts of the IMF and European Commission.

Italian companies and banks are on track to sell the smallest amount of debt since the financial crisis of 2008. Standard & Poor’s is warning that the policy standoff between Brussels and Rome could result in higher funding costs for the private sector.

The value of bonds issued by Italian lenders dropped by 17% between January to September. The pressure on Italian banks has become precarious as they must raise €110 billion to refinance their maturing debt.