Italy-EU standoff over budget rumbles on

Prime Minister Giuseppe Conte pledged to keep “revolutionising” Italy after a meeting with the EC president failed to break a long-running standoff

Italian Prime Minister Giuseppe Conte had the budget on his mind as he attended a meeting to endorse the draft Brexit withdrawal agreement in Brussels on Sunday. AFP

Prime Minister Giuseppe Conte pledged to keep “revolutionising” Italy after a working dinner with European Commission President Jean-Claude Juncker failed to break a long-running standoff over the populist government’s push to follow through on expensive election promises.

At a Brexit summit of European Union leaders in Brussels Sunday, Mr Conte clearly had other concerns preying on his mind. The premier, a Florence law professor with no previous political experience, told reporters after the summit that he discussed the budget on the meeting’s sidelines with leaders including Angela Merkel and Emmanuel Macron.

“There’s a good atmosphere, mutual trust,” Mr Conte said, adding he may meet his populist deputies Matteo Salvini of the anti-migration League and Luigi Di Maio of the anti-establishment Five Star Movement on the budget as early as Sunday evening. “We’re confident we can complete the process to our mutual satisfaction.”

Asked if he would discuss lowering a 2.4 per cent deficit target for next year with Mr Salvini and Mr Di Maio, Mr Conte replied: “We always discuss the reforms and what is needed to carry out the promises we have made.”

Under pressure from the euro-skeptic Mr Salvini and Mr Di Maio, Mr Conte held up on arrival at the Brexit summit a thick dossier which he gave Mr Juncker at the dinner on Saturday evening, entitled “A new path for a better future. Italy’s new strategy for social and economic growth.”

“This is what we talked about, I’m giving you a preview,” Mr Conte said. “We talked about these, in five months we are revolutionising the country and we will continue to do so.” His office said the report details past reforms and those due in coming weeks, focusing on a plan to boost investments.

What irks the commission and investors most however are the targets for the 2.4 per cent deficit and 1.5 per cent economic growth next year, amid concern about the impact on Italy’s debt mountain, the biggest in the euro area in real terms. Mr Salvini and Mr Di Maio have refused to budge on these. Mr Conte said budget targets were not discussed with Mr Juncker.

At the dinner Mr Juncker said spending cuts of €6 billion to €7bn may be enough to trim the 2019 deficit, newspaper La Repubblica reported. Mr Juncker also called for Mr Salvini and Mr Di Maio to stop their verbal attacks on the European Union, the paper said.

Mr Conte may offer to postpone the start of a “citizen’s income” for the poor, a landmark Five Star pledge, and a reform to lower the retirement age, a League promise, to April in order to recover as much as €5bn that would be used for investments, newspaper Il Sole 24 Ore said.

Just how limited is Mr Conte’s room for manoeuver was underlined by Mr Salvini framing the working dinner from afar. As the dinner began, Mr Salvini posted a tweet with a tough message for Brussels: “I demand RESPECT for the 60 million Italians who, with 5 billion given as a gift every year to Europe, don’t want INSULTS, they want the possibility to study, work, retire. They sent me into government and I answer to them, and I don’t retreat.”

After the dinner ended, Mr Salvini stated in a message sent by his office: “Good Conte. Dialogue and common sense in Italy’s interest, no step backwards but a will to properly assess timing and numbers for spending and investments.”

Mr Juncker sounded an affectionate note. “We are not in a war with Italy,” Juncker said Sunday morning. He added, speaking in Italian: “Ti amo Italia (I love you Italy.)” Mr Juncker said he and Mr Conte had agreed to keep in “permanent contact” to seek to reduce the differences between the two sides.

The commission said this month that Italy wasn’t respecting EU rules on borrowing, which may lead to a so-called excessive deficit procedure. That could involve fines of 0.2 per cent of Italy’s gross domestic product, increasing to 0.5 per cent if Rome doesn’t amend its budget.