Italy says cutting deficit would be 'economic suicide'

Italy is ready to continue talks with Brussels over Italy's 2019 budget plan, but Rome will not give up "fundamental pillars and characteristics" of the disputed proposal, Economy Minister Giovanni Tria said on Friday.

Rome hopes to stimulate the Italian economy by raising the deficit to 2.4 percent GDP. The populist cabinet, made up of anti-immigration League party and the anti-establishment 5-Star Movement, has strongly rejected the 0.8 deficit pledge made by the previous government.

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Sticking to it would require a "very brutal fiscal contraction," Tria said on Friday.

"For an economy that is slowing down sharply, this would actually be suicide," he said.

"I do not think that the European Commission expects an action of this kind, even if it would formally comply with the rules."

Italy too 'optimistic'

The EU has already rejected Rome's budget proposal and demanded a rewrite. Eurozone finance ministers and the European Commission worry about increasing Italy's debt load, which is already at 132 percent of the country's GDP. Out of all EU members, Greece is the only country with a larger debt percentage, at 182 percent. However, a crisis similar to the one in Greece would be nearly impossible for the EU to manage due to Italy's much larger economy.

Brussels wants to see Italy cut its deficit to 1.2 percent next year and continue the cuts until the budget is balanced.

In Helsinki, EU Commission Vice President Valdis Dombrovskis said that Rome's projections were "overly optimistic."

"Basically the assumption is that if they ... increase public spending, it will stimulate the economy and thus will help to reduce the budget deficit," Dombrovskis said. "We see that this is actually not materializing."

Di Maio says there will be no fines

Italy has until Tuesday to submit a new version of the budget. If Brussels is not satisfied with the changes, they can demand Rome to pay fines.

In Rome, Tria said his government was "busy drafting an answer to the European Commission with regards to the most contentious points of the budget."

Deputy Premier Luigi Di Maio pledged that Italy would not breach the 2.4 percent ceiling. When asked if the Italy would pay any EU fines, Di Maio said that "pacts must be honored," but emphasized that he expected a deal would be reached and Rome would not need to pay any levies.

dj/aw (dpa, Reuters, AP)