Italian government backs down on part of spending plans

MILAN (AP) — The Italian government on Wednesday indicated a softening in the public spending plans that have alarmed investors and eurozone partners, saying they would be gradually lowered after 2019.

Economy Minister Giovanni Tria confirmed that the deficit to GDP ratio next year would be higher than agreed by the previous government with the European Commission. But he added "that there would be a gradual reduction in the deficit in successive years."

The remark confirms a report by Corriere della Sera that the 2.4-percent budget deficit in the new spending plan would apply only to next year and not for the three-year spending plan.

Premier Giuseppe Conte's office also released a statement late Tuesday saying that officials were working on a proposal that would "accelerate the decline in the debt-to-GDP relationship over the course of three years."

The government's apparent softening was providing relief to financial markets, where investors are concerned that the planned spike in public spending will harm efforts to reduce its debt pile.

The Italian government 10-year bond yield declined, a sign of easing investor concern. And Milan's benchmark stock index, the FTSE MIB, rose by over 1 percent.

Italy's new populist government is boosting spending to meet election promises, namely to offer job seekers a basic income, do away with an unpopular pension reform and lower taxes. But the extra spending is boosting the deficit to levels even higher than Tria initially sought.

Tria told a conference held by the country's main business lobby that the government's economic policies are aimed at reducing the difference in growth between Europe and Italy, which has severely lagged, "and to assure at the same time a constant reduction in the debt-GDP ratio."

"We need vigorous growth, and at the same time increased resilience," Tria said, adding that a boost in investments was a crucial component.