Italy approves final budget draft yet vows dialogue with EU

Italian Deputy Premier and League leader Matteo Salvini greets supporters during a rally in Mezzocorona, northern Italy, Friday, Oct. 19, 2018. (Daniel Mosna/ANSA via AP)

ROME (AP) — Italy’s government vowed Saturday to engage in constructive talks with the European Union as it still gave final approval to a rule-busting budget and brushed off a ratings downgrade triggered by its higher-than-expected deficit targets.

Premier Giuseppe Conte said the budget plan was definitively approved by all forces at an emergency cabinet meeting Saturday that was called to respond to the EU concerns and resolve an internal government squabble.

Conte said Italy was “available for constructive dialogue” with the EU in the coming weeks.

But 5-Star Leader Luigi Di Maio and League leader Matteo Salvini indicated little room for substantive changes to the budget, with Di Maio saying: “We repeated our positions.”

The European Commission has warned Italy that its higher-than-expected budget deficit targets represent an unprecedented deviation from EU budget rules. The government has until midday Monday to respond to EU concerns.

Late Friday, international credit rating agency Moody’s downgraded Italy’s ratings to Baa3, with a stable outlook, citing the “material weakening in Italy’s fiscal strength.” Moody’s cited the revised plans that will push Italy’s deficit up to 2.4 percent of gross domestic product — three times higher than promised by the previous Italian government.

Salvini said Saturday he wasn’t worried about the downgrade or the criticism and that the Italian government was merely doing what was best for Italians.

“The government will go ahead despite ratings agencies, European commissioners and some internal misunderstanding,” Salvini said.

Salvini said ratings agencies had been wrong before about Italy “and they’ll fail again this time. It’s a good budget and we’ll see it through to the end.”

The cabinet meeting was called in part because Di Maio had claimed that unauthorized changes were made to the draft budget, involving a proposal to extend a tax amnesty on money held abroad and brought back to Italy. The 5-Star Movement opposes such a move, fearing possible money laundering.

The accusations had sparked tensions in the 4-month-old coalition government but by Saturday the dispute appeared resolved.

Conte said the discrepancy amounted to a technical misunderstanding of a complicated section of the budget plan, and had been simplified in a way that satisfied both his deputies.

Italy insists the increased spending in its plan is necessary to boost growth, which will bring down debt, and that the higher deficit will in turn come down. But Italy is one of the 19 European nations that use the joint euro currency, and its eurozone partners have demanded that it give up the increased spending.

Markets reacted to Italy’s plans by pushing up borrowing costs Friday to the highest levels in five years.

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