The Italian government agreed to a 2019 budget deficit target at 2.4% of GDP on Thursday night in a move that was celebrated by leaders but could bring the heavily indebted country into conflict with the European Union.

The economy minister Giovanni Tria succumbed to pressure from the government’s two deputy prime ministers – Luigi Di Maio, the leader of the anti-establishment Five Star Movement (M5S), and Matteo Salvini, who heads up the far-right League – to increase the target in order to pay for election campaign promises such as a universal basic income, flat tax and pension reforms.

Tria, an academic who is not affiliated to either party, had been seeking a more conservative 1.9% in order to avoid adding to Italy’s debt pile, which currently stands at around 131% of GDP, the second highest in the eurozone after Greece. Speculation that Tria would resign has been denied.





“There is an accord within the whole government for 2.4%, we are satisfied, this is a budget for change,” Di Maio and Salvini said in a joint statement.

Di Maio wrote on Facebook that the agreement marked a historic day and was a victory for Italian citizens, not the government. The means-tested basic income, which will cost €10bn, was a key feature of his party’s election campaign.

“For the first time in the history of this country we will erase poverty thanks to the basic income,” he said. “We will finally give a future to the 6.5 million people, who until now have lived in poverty and been completely ignored.”

He added that the target also contained measures to spur growth. It will now begin its passage through parliament before being presented to the EU by 20 October.

The euro and stock markets across Europe fell earlier on Thursday over fears that an agreement might have been delayed, but then rebounded in anticipation of the government reaching a compromise of around 2%. Italian assets may come under pressure again on Friday.

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“The assumption under which capital markets were operating until today, the idea that Tria can rein in the animal spirits of this government, has faded away,” said Francesco Galietti, the founder of Policy Sonar, a Rome-based consultancy.

“The good news is a deal has been done, which is better than endless delay.”

A target of 2.4% was within the 3% EU debt limit, but it could go higher as the budget goes through parliament.

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“2.4 is not even the final figure – this is what the government is signing off but during the journey through parliament it could mushroom, so could eventually be 3%,” added Galietti.

Peter Ceretti, an Italy analyst at the Economist Intelligence Unit, said in a note earlier on Thursday that in the event of a deficit target much larger than 2% “there will be a more significant dust-up with the EU”.

However, so long as the target contains growth and reform elements, then things with the EU might go better than forecast.

“There needs to be some infrastructure spending, as well as an effort to contain tax evasion and simplify laws – I don’t think they [the EU] will narrowly look at the number, they’re more interested in seeing a will to reform,” said Galietti.