Investors react with calm to Italy's draft budget

REUTERS  Chris Wattie

US Federal Reserve in Washington DCREUTERS Chris Wattie

16 he was proud of his government's freshly approved expansionary budget while the European Commission warned it may run into opposition from eurozone partners.

The spending boost is essentially due to what the government calls its "people's budget", a series of pension and tax changes that will cost 37 billion euros ($43 billion), of which 22 billion will be paid for by expanding the deficit.

The weeks of wrangling that preceded the budget's approval and the previously announced plan to raise the deficit took markets on a roller coaster ride, but its passage by Conte's cabinet seemed to be saluted with relief.

"I have read Oettinger's comments and I repeat that they should stop invading our field and just let the Italian government work", Deputy Prime Minister Matteo Salvini said on Facebook.

European Union leaders are set to discuss the eurozone on Thursday, with harder line leaders - most notably from the Netherlands - expected to denounce Italy's decision to go on a public spending spree. One of the key forecasts in the budget is that Italy's high debt to GDP ratio, of around 130 percent now, will decline to 126.7 percent of GDP in 2021.

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"In some countries, this would have the outcome of we to cover of insults and invectives, because my Committee and myself, we are accused by several governments in Europe (...) have been too flexible for Italy", he insisted.

Ralph Brinkhaus, the group leader of Angela Merkel's conservative party in the German parliament, signaled that Berlin was anxious.

"This is exactly what we need today: a respectful dialogue between the Commission and Italy", added, a little later, the president of the european Council, Donald Tusk.

The commission is expected to send a formal letter with its assessment to the Italian government within the next two weeks. It could reject them completely and ask Rome to rewrite them, an unprecedented step that would formally begin a long dispute.

Claudio Borghi, the League's often pugnacious economic spokesman, struck an unusually conciliatory tone on October 16. European Union officials hope that during that period the government will be open to talk with the European Union and make adjustments to its budget, though they concur that a lot will depend on how investors react to this standoff and the willingness of the country's leadership to cave in to market pressure. And I think this is where the country needs it most.

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