Italian Prime Minister Giuseppe Conte heralded on Wednesday a budget deal with the European Commission, saying the long-awaited accord allowed his government to honour its main commitments and boost the economy.
In a speech to parliament, Conte said he had resisted calls for even greater cuts and had safeguarded key measures.
"At the end of tough negotiations, conducted with tenacity, we have reached a point of sustainable equilibrium, sticking to a higher (deficit) figure than that deemed appropriate by Europe," Conte told the upper house Senate.
Italy reached a deal with the European Commission over its contested 2019 budget after weeks of wrangling that had shaken financial markets.
"Great satisfaction for the result achieved," Deputy Prime Minister Matteo Salvini said in a brief statement, without mentioning the Commission or giving any details of the accord.
The leaders of Italy's populist government originally presented a budget for the eurozone's third largest economy that envisaged a deficit equal to 2.4 per cent of gross domestic product (GDP) in 2019, up from 1.8 per cent this year.
They argued that Italy needed expansionary measures to lift lagging economic growth. The Commission swiftly rejected the plan, saying it would not lower Italy's large debt and declaring it in clear breach of EU fiscal rules.
After initially refusing to budge and launching fierce verbal assaults on EU commissioners, the Italian government finally relented last week and submitted a revised plan, including a deficit target of 2.04 per cent.
CALMER MARKETS
EU sources said earlier this week that the Commission wanted the target to be trimmed further, but two government sources in Rome, who declined to be named, said on Tuesday that commissioners had finally agreed to Rome's revised figure.
The clash with the EU, whose fiscal rules are designed to protect the eurozone from a debt crisis, has worried investors, pushing up Italy's borrowing costs and depressing bank stocks.
But bond yields have fallen back since the end of November as expectations of a compromise deal grew.
As part of the new plan, Rome has agreed to lower its forecast for growth next year to 1 percent from 1.5 per cent - a figure which had been widely criticised as unrealistic - a government source and a Commission source said on Monday.
Italy's ruling parties, the rightist League and anti-establishment 5-Star Movement, insist that any deal must not prevent the launch next year of their two flagship reforms - income support for the poor and a lower retirement age.
However, League leader Salvini and 5-Star chief Luigi Di Maio have said savings will come from revisions to both measures, mainly by launching them no earlier than March, instead of from the start of 2019.
Time is running out fast to finalise the budget law, which must clear both houses of the Italian parliament by the end of the year.
Looking to dispel fears of a budget crunch, Salvini told reporters the package would be approved in time. "We are ready to work even on the night of New Year's Eve," he said.