This article is more than 1 year old

This article is more than 1 year old

Italy has managed to avert EU sanctions after reaching a compromise with the European commission over its 2019 budget.

The Italian prime minister, Giuseppe Conte, said the government had managed to reach an agreement to reduce the deficit target to 2.04% of GDP from 2.4%. This has been achieved without making drastic changes to key budget proposals such as the promise of a universal basic income and lowering the pension age.

“Over the last few weeks we worked to bring the positions closer without ever moving backwards with respect to the objectives the Italian people set us in the 4 March election,” Conte said.

“The economic-financial estimates about the measures that attracted the most attention of our European partners revealed that the resources [needed] were less than forecast.”

The yield, or effective interest rate, on Italian 10-year government bonds fell to 2.79%, the lowest level since September. Less than two months ago the yield, the price the Italian government has to pay to borrow, rose to 3.8%.

However, Valdis Dombrovskis, a European commission vice-president, described the agreement with Italy as a “borderline compromise” that fails to provide long-term solutions to the country’s economic problems.

“But it enables us, for now, to avoid opening a debt procedure, as long as the negotiated measures are fully applied,” he said at a press conference in Brussels.

He said the commission would closely monitor whether the Italian parliament voted through the budget agreed with the EU.

Italy’s industry minister, Dario Galli, said last week the bulk of the spending cuts needed to meet the lower deficit target would be most likely to hit universal basic income, intended to give €780 (£700) a month to the unemployed, and the proposal to cut the retirement age. The other main proposal is the introduction of a flat tax.

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Pierre Moscovici, the EU economics commissioner, said the agreement is “a victory of political dialogue” that will “make the euro stronger”.

The Italian government believed its original deficit target of 2.4% would have produced economic growth of 1.5% over the coming year, despite the economy stalling in the third quarter.

Italy is saddled with about €2.3tn (£2tn) of public debt and the Bank of Italy said in November the cost of servicing the extra debt on the original deficit target of 2.4% could rise to €5bn in 2019 and €9bn in 2020. Businesses have been concerned that the budget contains little in the way of spurring investment.

A survey carried out by the polling company EMG Aqua last week revealed 41% of Italians supported reducing the public debt. Lowering the retirement age was a priority for 22%, a flat tax for 10% and universal basic income for 9%.