Italian government pleases markets with softer deficits

The Italian government on Wednesday softened budget deficit targets that have alarmed investors and eurozone partners, saying they would be gradually lowered after 2019.

Economy Minister Giovanni Tria confirmed that the deficit to gross domestic product ratio next year would be higher than agreed by the previous government with the European Commission. But he added "that there would be a gradual reduction in the deficit in successive years."

Premier Giuseppe Conte later told a news conference later that the 2.4-percent budget deficit targeted for next year would be reduced to 2.1 percent in 2020 and 1.8 percent in 2021.

"We are respecting the commitments already announced: it is a serious, responsible and courageous maneuver," Conte told reporters after meeting with Tria and the leaders of the two main governing parties, the League and the 5-Star Movement. "Our country needs strong growth."

The government's softening provided relief to financial markets, where investors are concerned that the planned spike in public spending will harm efforts to reduce its debt pile.

The Italian government 10-year bond yield declined significantly, a sign of easing investor concern. And Milan's benchmark stock index, the FTSE MIB, closed up by nearly 1 percent.

Italy's new populist government is boosting spending to meet election promises, namely to offer job seekers a basic income, do away with an unpopular pension reform and lower taxes. But the extra spending is boosting the deficit to levels even higher than Tria initially sought.

Full details of the spending plan still haven't been released, but Conte said the plan would lower Italian debt from 130.9 percent of GDP to 126.5 percent in 2021 and reduce unemployment from just under 10 percent now to 7 percent or 8 percent in the period.

Deputy Premier Matteo Salvini said that undoing a previous government's pension reform would allow up to 400,000 people to retire, "freeing that many jobs."

"It means that that many who were defrauded by the pension reform are finally free to return to their lives," Salvini said.

Earlier, Tria told a conference held by the country's main business lobby that the government's economic policies are aimed at reducing the difference in growth between Europe and Italy, which has severely lagged, "and to assure at the same time a constant reduction in the debt-GDP ratio."

"We need vigorous growth, and at the same time increased resilience," Tria said, adding that a boost in investments was a crucial component.