ROME: Prime Minister Matteo Renzi’s government plans to stick to its previous deficit target for this year, said a government official familiar with the plan, warding off a clash with the European Union over budget limits.
The Finance Ministry targets a public deficit this year at 2.6 percent of gross domestic product, in line with the previous figure set in October, said the official who asked not to be identified because the budget plan is still being drafted. It will be ready on Friday, he said.
The government will raise Italy’s growth forecast to 0.7 percent this year, up from 0.5 percent estimated in October, the official said. A Finance Ministry spokesperson contacted by Bloomberg declined to comment on the draft budget proposal, citing internal policy.
By sticking to the previous deficit target Italy won’t test the European Commission’s new guidelines for member nations approved in January. These allow for more gradual reduction in fiscal deficits for countries, such as Italy, that have complied with the 3 percent-of-GDP deficit limit and are committed to economic reforms.
“The European and Italian economies are entering a macroeconomic window of opportunity,” Finance Minister Pier Carlo Padoan said at a March 25 event in Rome. He said Italy was benefiting from the cheaper euro, lower oil prices and the European Central Bank’s quantitative easing.
Italy has until March to convince Brussels that its 2015 budget plan is in line with EU spending rules. The country is under extra scrutiny because its overall debt levels remain high even though its annual spending is under the limit.
Renzi’s government needs to keep cutting spending in order to reduce its 2.2 trillion euro ($2.4 trillion) debt and finance a tax rebate for low wage earners introduced last year. The official said spending cuts in 2015 would total at least 10 billion euros, though the final amount will depend on actual growth.
The government will submit the budget plan to parliament at the end of next week after its approval at a cabinet meeting, Padoan has said.
