UPDATE 1-Italy’s Tria says sharp deficit cuts would be “suicide” for economy

(Adds Tria, Centeno comments, background)

ROME, Nov 9 (Reuters) – Economy Minister Giovanni Tria said on Friday a sharp reduction in the government’s budget deficit, as demanded by the European Commission, would be suicide for Italy’s economy.

Speaking alongside the head of the Eurogroup Mario Centeno, Tria said he had no intention at present of changing Italy’s contested 2019 budget and added that EU concerns over the expansionary package were unfounded.

Centeno told reporters that the Eurogroup of euro zone finance ministers hoped Tria would revise the budget, saying this would help dispel market doubts over Italy which have led to a sharp rise in the country’s borrowing costs.

The Commission, which says Italy’s 2019 deficit goal of 2.4 percent of gross domestic product is too high, has given Rome until Tuesday to reduce it, but the government insists that fiscal expansion is needed to help the struggling economy.

Tria said sticking with the commitment of Italy’s previous government to lower the deficit to 0.8 percent of GDP would be “economic suicide and I don’t believe the EU expects this”.

The ruling coalition of the anti-establishment 5-Star Movement and the right-wing League took office in June. Tria, a 70-year-old former academic, does not belong to either party.

Many countries had broken the EU’s fiscal rules on deficit reduction in the past, he said, including France and Germany, but a political agreement had always been found.

If Italy does not budge, the Commission is expected launch an “excessive deficit procedure” that could eventually result in fines, though these have never been levied on any country in the monetary union.

Tria said he was “not taking for granted” that the procedure would be launched, and Centeno, the former finance minister of Portugal, said sanctions against Italy were “not on the Eurogroup’s agenda at the moment.”

“”Within the rules and beyond the rules, the sustainability of public finances is what is important,” Centeno said. (Reporting by Gavin Jones and Giuseppe Fonte; Editing by Crispian Balmer and Alison Williams)

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