Italy’s Salvini confident about EU budget deal on debt

Italian Deputy Prime Minister Matteo Salvini has expressed confidence that Rome will reach an accord with the European Union over public finances.

Salvini – who has vowed to cut taxes and reject austerity measures – is to meet later on Monday with his fellow deputy prime minister, Luigi Di Maio of the Five Star Movement, and Prime Minister Giuseppe Conte.

Meanwhile, Conte has renewed his threat to resign if the two coalition leaders – Salvini and Di Maio – fail to reach a compromise in the budget tussle with Brussels.

Italy is at risk of facing EU disciplinary measures over its 2.3 trillion euro ($2.6 trillion) debt, which stands at more than 1.3 times its economic output – a ratio second only to Greece’s within the eurozone.

Conte warned in a newspaper interview of possible market shocks and credit-rating downgrades if the procedure goes ahead in Brussels – a move that could result in financial sanctions such as fines, suspensions in EU funds and tighter oversight. Rome could be required to raise taxes and cut spending to meet budget targets.

But Salvini struck a reassuring note after his Eurosceptic League party, which proved to be Italy’s strongest political force in the European elections last month, was further boosted by second-round local votes on Sunday.

“The last thing we want to do is pick up a fight with Europe,” Salvini told a news conference streamed live on Facebook. “The only thing I’m not ready to compromise on is the need to reduce Italy’s unemployment rate.”

“I believe it is also in Europe’s interest to have an Italy that runs and not an Italy that strolls, so I’m convinced that among sensible people an accord can be found.”

Reaching for a solution

Salvini has said he would welcome any alternative to a controversial proposal by the country’s anti-establishment coalition to issue short-term debt to settle overdue payments to suppliers – a plan that has rattled financial markets.

The treasury would print billions of euros of non-interest-bearing, tradeable securities. Recipients could use them to pay taxes and buy any goods or services provided by the state.

The certificates would be used as a form of money, but would be used only domestically and would not be traded on international financial markets.

European Central Bank President Mario Draghi and Italian Finance Minister Giovanni Tria have said such “mini-bills” would either amount to an illegal parallel currency or add to Rome’s debt pile. Other critics have alleged the goal is to give Italy’s economy a way to function even if it leaves the eurozone.

Coalition parties on Sunday pushed back against criticism of the so-called “mini-BOT” scheme, which is named after Italy’s treasury bills, highlighting growing tensions between the largely populist coalition with technocrats Tria and Conte.

“If there are other tools that are equally effective, that’s fine,” Salvini said, adding that he believed both Di Maio and Conte would agree that boosting anaemic growth and creating jobs had to be the government’s priority.

In a radio interview, Di Maio said he expected the trio to agree on a minimum salary, tax cuts and curbing privileges for politicians and policymakers.

Salvini said he was open to discussing a minimum wage, but that firms first had to be put in a position to pay salaries, and that paying overdue state debts and cutting taxes were the only ways to boost growth.

He added that he would only stay in power if he could work to boost Italy’s “virtually zero” growth. “This will be at the heart of our constructive dialogue with Europe,” he said.

The Bank of Italy on Friday halved its forecast for economic growth this year to 0.3 percent, blaming global trade tensions as well as uncertainty at home holding back firms’ investments.