Italy lowers deficit in revised budget to avoid EU sanctions

Italy lowered its proposed deficit to just over 2 percent of GDP in a revised budget submitted Wednesday to the EU Commission in a bid to avoid costly sanctions.

Premier Giuseppe Conte told reporters in Brussels after meeting with European Commission President Jean-Claude Juncker the new draft lowers the budget deficit to 2.04 percent of GDP from 2.4 percent of GDP. Conte said the government had identified additional financial resources to allow room for negotiations with the commission, without specifying what they were.

"We hope to bring home a positive solution," Conte said, adding that the climate in the meeting was "fruitful."

Conte said both parties represented in Italy's coalition government back the new proposal, which retains both the basic income for job-seekers promised by the 5-Star Movement and a rollback on an unpopular pension reform pledged by the League.

"We have been correct and honest with the citizens, respecting electoral promises, and at the same time responsible with the EU," Conte said.

The EU commission rejected Italy's previous budget, saying the populist government's spending plans would break promises to lower public debt. The EU is expected to take a few days to evaluate the new proposal before indicating whether it is acceptable, but the Milan Stock Exchange gained nearly 2 percent before closing on expectations that Italy would take steps to address Brussels' concerns.

While the Italian government has argued that the spending increases were necessary to relaunch growth after years of austerity, the Commission said the measures would not boost growth and would force new budget cuts in the future.

Italy risks sanctions for excessive debt, which has been stuck at 131 percent of GDP, well above the limit of 60 percent. Italy's debt load is the second highest in Europe, after Greece, and concerns about its ability to keep up debt payments have caused borrowing costs to spike. That, analysts say, is not sustainable and could wipe out any benefits to citizens from social programs in the new budget.