Italy greenlights plan to cut deficit by 3.4 bn euros

Italian Prime Minister Paolo Gentiloni speaks during a press conference on April 10, 2017 at the Palacio del Pardo, near the Spanish capital Madrid, following a summit of southern European Union countries

Italy's debt-burdened government approved a package of economic reforms Tuesday designed to cut 3.4 billion euros from its deficit this year, Prime Minister Paolo Gentiloni said, following pressure from Brussels.

The package of reforms -- which include measures to fight tax evasion and reduce public spending, but no tax hikes -- will knock 0.2 percentage points off Italy's deficit ratio, Gentiloni said after a cabinet meeting.

Rome also upgraded its forecast for economic growth this year to 1.1 percent from 1.0 percent previously, following growth in 2016 of 0.9 percent.

The European Commission had in mid-January written a letter to Rome demanding that it revisit its 2017 budget plans and shave off 3.4 billion euros ($3.6 billion) under the threat of penalties.

The 2017 Italian budget adopted last autumn had forecast a deficit equivalent to 2.3 percent of GDP -- significantly higher than the 1.8 percent initially demanded by Brussels.

"The deficit-to-GDP ratio will be reduced to 2.1 percent this year," Gentiloni pledged.

"Our forecasts are cautious and it has often turned out in recent years that they are corrected positively afterwards."

Italy has the second highest public debt of any EU country, equivalent to 133 percent of its GDP in 2016.

It was one of eight eurozone countries warned in November that they could face fines and restricted access to funds from Brussels over their failure to stick to the EU's Stability Pact rules.

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