August 3, 2018 / 7:20 AM / 4 months ago

Italy's Conte says budget outline decided, as markets worry

ROME (Reuters) - Italian Prime Minister Giuseppe Conte said on Friday the government had fixed the framework of its 2019 budget, but investors concerned about Rome’s spending plans sold government bonds and the statistics bureau said the economy would keep slowing.

FILE PHOTO: Italian Economy Minister Giovanni Tria attends session of the Lower House of the Parliament in Rome, Italy, June 6, 2018. REUTERS/Tony Gentile

Conte’s economy minister, Giovanni Tria, is under pressure from within the government to ramp up spending and challenge European Union budget rules, and investors fear Italy may go on a spending spree or even that new elections could be triggered.

“Today we decided the economic and financial plan we will present in September,” Conte said in a statement after meeting his top ministers.

The cabinet looked at “various reforms that will allow Italy to launch more robust and stable economic growth ... making us more competitive on global markets,” Conte said, without giving further details.

Ahead of the meeting, Deputy Prime Minister Matteo Salvini said the budget would include tax cuts and pensions reform.

Both moves would be likely to increase Italy’s large public debt, unless balanced by corresponding spending cuts, which the government has so far not detailed.

“The budget will not include all planned measures immediately, but there will be the first steps towards a flat tax and a radical overhaul of the pensions system,” Salvini, who leads the right-wing League, said in a TV interview.

His remarks came as Italian government bonds were selling off for a second day on speculation over the budget.

Yields on Italian 10-year bonds IT10YT=RR rose to 3 percent for the first time since June 11 before easing slightly, and the closely watched spread over German debt DE10YT=RR hit its widest since late June, at 258 basis points.

The ruling coalition, made up of the anti-establishment 5-Star Movement and the League, have pledged to cut taxes, roll back a 2011 pension reform that raised the minimum retirement age, and boost welfare spending.

Economy Minister Giovanni Tria, a former economics professor who is not a member of either of the ruling parties, has repeatedly said the government will be cautious and will aim to reduce the huge public debt. At 132 percent of national output, Italy’s debt is the highest in the euro zone after Greece’s.

Tria has promised to coordinate tax and spending initiatives with the European Commission, which monitors how European Union member states comply with EU fiscal rules.

However, some investors fear he could be sidelined or even forced to resign over the budget, which must be presented to the Commission by October.

The coalition’s task is complicated by a faltering economy. Statistics bureau ISTAT said on Friday its composite leading indicator “continues to decline ... signaling a continuation of the current phase of slowing economic growth.”

Ministers attending Friday’s meeting included Tria, Foreign Minister Enzo Moavero, Industry and Labour Minister Luigi Di Maio, who leads the 5-Star Movement, and European Affairs Minister Paolo Savona.

Savona was the coalition’s original pick as economy minister. He was vetoed by the head of state because of his criticism of Italy’s participation in the euro.

He proposed last month that Italy boost investments by about 50 billion euros ($58 billion) and urged Brussels to back the plan instead of insisting on deficit reduction.

Additional reporting by Francesco Guarascio, editing by Larry King and Hugh Lawson

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