ROME (Reuters) - Italy's coalition government is prepared to adjust its contested 2019 budget should markets react negatively and the spread between 10-year government bond yields and German yields spike, the newspaper Il Messaggero reported on Tuesday.
On Monday, the government said it would stick to its plans, though acknowledging that its budget, which would raise next year's deficit to 2.4 percent of gross domestic product, was not in line with the EU Stability and Growth Pact.
The newspaper did not say whether the alternative budget would lower the deficit to less than 2.4 percent of GDP. It did say the alternative would not entail an exit from the euro.
The European Commission had already sent Rome a warning letter about the budget last week, the first formal step that could lead to Brussels rejecting the measures and imposing fines. The Commission is expected to decide its next step on Tuesday.
The government's "plan B" would involve redefining retirement measures and basic income for the poor, two key points of its expansionary budget, Il Messagero reported, without giving details of its sources.
(Reporting by Giulia Segreti; additional reporting by Agnieszka Flak in Milan; editing by Andrew Heavens, Larry King)