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Italy cuts deficit target for 2019 to 2.04% to avoid EU sanctions

Italy cuts deficit target for 2019 to 2.04% to avoid EU sanctions

The Italian government will be forced to cut “a few billion” across two of its flagship policies to meet the lower deficit target it has proposed to the European commission.

Italian bonds rallied after the government bowed to pressure to reduce its deficit target for 2019 to stave off EU sanctions. The country’s prime minister, Giuseppe Conte, proposed cutting the target from 2.4% to 2.04%.

“We have recovered some financial resources, we have been very prudent,” Conte said after meeting the European commission president, Jean Claude Juncker, in Brussels. “And we are now using these financial resources for this negotiation.”

The yield, or effective interest rate, on Italian 10-year government bonds fell to 2.90%, the lowest level since September. Less than two months ago the yield, the price the Italian government has to pay to borrow, rose to 3.8%.

The spread, the gap between Italian bonds and safe haven German bonds, dropped to 266 points, compared with more than 300 in October.

Pierre Moscovici, the EU economics commissioner, said talks with Italy were progressing well, but that more work needed to be done.

Italy’s industry minister, Dario Galli, said the bulk of the spending cuts needed to meet the lower deficit target would be most likely to hit the government’s proposed universal basic income, intended to give €780 (£700) a month to the unemployed, and the proposal to cut the retirement age.

“A few billions compared to the original theoretical forecasts will come from the realistic implementation of the government’s most relevant measures,” Galli told the broadcaster La7.