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Italy's budget fight with Brussels shifts focus to 2020: sources

ROME (Reuters) – Italy believes it can satisfy the European Commission’s demands over its public accounts for this year, but the real sticking point in negotiations is now about 2020, government sources say.

Brussels has threatened Italy with disciplinary action that would entail closer oversight of its fiscal policy and could eventually lead to fines.

It complains Rome did not cut its public debt in 2018 as promised, and sees it continuing to rise this year and next unless the anti-austerity government adopts belt-tightening measures.

The government in Rome now believes its 2019 budget deficit will come in at 2% of gross domestic product – a level already accepted by the Commission in December, a government source said, but Brussels also wants commitments for 2020.

That has forced Economy Minister Giovanni Tria into a tough negotiation with the coalition of the anti-establishment 5-Star Movement and the far-right League, which does not want to sign up to any deficit cuts for next year.

“The parties are open to discuss 2019, but they do not want to be bound over the 2020 budget,” added the source, who asked not to be named.

The Treasury estimates that next year’s deficit would be 1.8% of GDP under an unchanged policy scenario, a second source said.

That is lower than the government’s official goal 2.1%, but the ruling parties want it increased to make room for tax cuts to boost Italy’s stagnant economy.

“I would gladly raise the deficit close to the 3% limit,” the League’s economics chief Claudio Borghi said on Monday, referring to the ceiling set by the 1992 Maastricht Treaty that laid the foundations of monetary union.

The League, which trounced 5-Star at May 26 European parliamentary elections, has made tax cuts its flagship policy ahead of the 2020 budget.

“The Italians’ vote means we must cut taxes”, League leader Matteo Salvini told reporters on Monday during a visit to United States.

The next step in the budget tussle is expected to be a June 20-21 summit in Brussels, where Prime Minister Giuseppe Conte will try to plead Italy’s case with outgoing Commission president Jean-Claude Juncker and EU leaders.

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