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European Commission accepts Italy’s revised budget

Brussels - The European Commission has accepted Italy's revised budget proposal, ending months of wrangling and avoiding the prospect of EU punitive action against Rome.

To address Brussels' concerns

Italy's populist government proposed to lower its deficit target for 2019 from 2.4 to 2.04 per cent of gross domestic product (GDP).

The commission, the EU's executive body, said it would accept the offer rather than recommend the launch of a so-called excessive deficit procedure (EDP) against Rome.

"Today's agreement is not ideal, but it allows us to avoid an EDP - provided that these measures are fully implemented," said European Commission Vice President Valdis Dombrovskis.

The excessive deficit procedure implied strict EU monitoring of Italian finances and potential fines in case of continued non-compliance with eurozone rules.

Italian Deputy Premier and Interior Minister Matteo Salvini said the budget deal "is a victory of common sense for the good of Italian citizens."

"From confrontation to cooperation"

In a statement, the leader of the far-right, eurosceptic League party said there will be no delays or changes in promised welfare reforms.

"Now full steam ahead with the budget: we are happy with the results achieved which will turn into real money from January to help millions of Italians," he said.

Despite Salvini's praise, the announcement marks a denouement for Italy's leaders, who had castigated Brussels for months for being unduly harsh with Rome.

Both Dombrovskis and EU Economy Commissioner Pierre Moscovici said the tone in recent weeks shifted from confrontation to cooperation.

"The Italian government has come a long way," said Dombrovskis. "Only a few weeks ago there was confrontational rhetoric."

Higher costs

But Dombrovskis also expressed caution, noting that some of the savings result merely from a delayed implementation of two measures - a new "citizens' income" for the poor and a reversal of controversial pension cuts - that are key for Italy's coalition.

The postponement will help bring extra savings to 10.25 billion euros in 2019, he noted.

"When these measures will fully come into force, they will result in higher costs ... in 2020 and 2021," he said.

Rome has said it will raise its VAT tax if needed to offset those costs, "but in the past, Italy has not activated this kind of safeguard," he noted.

"Of course, the commission will continue to monitor this situation," he added.

Dialogue rather than conflict

Meanwhile, Moscovici rebuffed suggestions that the EU's decision was driven by concern that populist parties across the European Union will harness anti-Brussels sentiment ahead of European Parliamentary elections in May 2019.

"We chose dialogue rather than conflict," he said, emphasizing that the decision shows that EU rules "are compatible with democratic choices."

The agreement shows "the European Commission is not the enemy of the Italian people," he noted. "We are not a machine made up of insensitive bureaucrats imposing austerity and denying democracy."