September 12, 2018 / 11:57 AM / 10 days ago

Italy's 5-Star denies threatening economy minister over budget

ROME (Reuters) - Italy’s 5-Star Movement denied on Wednesday that it had threatened to demand Economy Minister Giovanni Tria’s resignation unless he approved billions in spending next year for its flagship campaign promise.

FILE PHOTO: Italian Economy Minister Giovanni Tria in the lower house of parliament in Rome, Italy, June 6, 2018. REUTERS/Tony Gentile/File Photo

Earlier in the day, state news agency Ansa reported that the job of Tria, an economics professor who is a member of neither party in the coalition government, was at risk.

On Tuesday, 5-Star leader Luigi Di Maio said that if the 2019 budget did not include a universal income for the poor, “it will be a problem for the government”.

Then Stefano Buffagni, a cabinet undersecretary and 5-Star member, said on a TV talk show: “I respect Tria, but he must respect the political forces that support him.”

The movement, which shares power with the far-right League, wants at least 10 billion euros ($11.6 billion) in spending to cover the universal income measure, a senior 5-Star source told Reuters.

However, 5-Star denied it was trying to remove Tria. “That 5-Star is putting pressure on minister Tria is unfounded, as is any reference to his possible resignation,” the group said in a statement.

Italian bond yields rose on the Ansa report, and held higher after the official denial, widening the gap with the benchmark German Bund yield.

FILE PHOTO: Italian Deputy PM Luigi Di Maio speaks during a news conference in Cairo, Egypt August 29, 2018. REUTERS/Mohamed Abd El Ghany/File Photo

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The government took office in June and the two coalition parties have held a series of meetings in recent weeks to hammer out a compromise over next year’s budget law.

For its part, the League is seeking sweeping tax cuts — its main campaign pledge. Both parties also want to roll back a 2011 pension reform and head off a 12.4-billion-euro automatic VAT increase due next year.

But to ease tensions in financial markets - which sold off Italian bonds amid fears that the government would go on a spending spree and fail to keep its mammoth debt in check - Tria and others came forward last week to say the main measures would be phased in over its five-year term.

Massimo Bitonci, an undersecretary at the economy ministry and a member of the League, said at the weekend that the coalition parties would have 5 billion euros each to implement their campaign promises in the 2019 budget.

The coalition is due to present Italy’s latest economic growth and public finance targets by the end of the month, before a draft budget plan, which must be delivered in October.

Further complicating matters for the government are signs that the economy, the euro zone’s third biggest, is slowing.

Industrial production fell sharply in July from the previous month, statistics office ISTAT said on Wednesday, taking the index to its lowest level since May of last year.

A slowing economy will make it even harder for the two parties to meet their campaign promises while keeping the country’s debt, already worth more than 130 percent of annual output, under control.

($1 = 0.8623 euros)

Reporting by Massimiliano Di Giorgio and Giuseppe Fonte, writing by Giselda Vagnoni and Steve Scherer; Editing by Crispian Balmer and David Stamp

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