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Italy ministers meet on budget, markets worry

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Italy ministers meet on budget, markets worry

Italy ministers meet on budget, markets worry
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Tony Gentile(Reuters)
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By Giuseppe Fonte and Gavin Jones

ROME (Reuters) - Italian Prime Minister Giuseppe Conte summoned top ministers on Friday to discuss next year's budget, as investors concerned about the government's spending plans sold Italian bonds and the national statistics bureau warned the economy would keep slowing.

Ahead of the meeting, which began at around 11 a.m. (0900 GMT), Deputy Prime Minister Matteo Salvini said the budget would include tax cuts and pensions reform.

Both moves would be likely to increase Italy's large public debt, unless balanced by corresponding spending cuts, which the government has so far not detailed.

"The (2019) budget will not include all planned measures immediately, but there will be the first steps towards a flat tax and a radical overhaul of the pensions system," Salvini, who leads the right-wing League, said in a TV interview.

No news conference is scheduled to follow the meeting and no official announcement is expected.

Salvini's remarks came as Italian government bonds were selling off for a second day on speculation over the budget.

Yields on Italian 10-year bonds <IT10YT=RR> rose to 3 percent for the first time since June 11, and the closely watched spread over German debt <DE10YT=RR> was at its widest since late June, at 257 basis points.

The ruling coalition, made up of the anti-establishment 5-Star Movement and the League, have pledged to cut taxes, roll back a 2011 pension reform that raised the minimum retirement age, and boost welfare spending.

Economy Minister Giovanni Tria, a former economics professor who is not a member of either of the ruling parties, has repeatedly said the government will be cautious and will aim to reduce the huge public debt. At 132 percent of national output, Italy's debt is the highest in the euro zone after Greece's.

Tria has promised to coordinate tax and spending initiatives with the European Commission, which monitors how European Union member states comply with EU fiscal rules.

However, some investors fear he could be sidelined or even forced to resign over the budget, which must be presented to the Commission by October.

The coalition's task is complicated by a faltering economy. Statistics bureau ISTAT said on Friday its composite leading indicator "continues to decline ... signalling a continuation of the current phase of slowing economic growth."

Ministers attending the meeting include Tria, Foreign Minister Enzo Moavero, Industry and Labour Minister Luigi Di Maio, who leads the 5-Star Movement, and European Affairs Minister Paolo Savona, sources said.

Savona was the coalition's original pick as economy minister. He was vetoed by the head of state because of his criticism of Italy's participation in the euro.

He proposed last month Italy should boost investments by about 50 billion euros (£44.5 billion) and urged Brussels to back the plan instead of insisting on deficit reduction.

(Additional reporting by Francesco Guarascio, editing by Larry King)

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