By Steve Scherer
ROME (Reuters) - Italy's coalition government has agreed on the "numbers and contents" of the budget it will propose to Brussels in an effort to avoid disciplinary action over its plans to hike deficit spending next year, a League party spokeswoman said on Monday.
The European Commission rejected the Italian budget in October, saying it would not lower the country's huge debt and declaring it in clear breach of EU fiscal rules. Rome submitted a revised plan last week with a lower deficit.
But a final deal with Brussels has yet to be reached, and the government sat down on Sunday evening to a marathon meeting to hammer out the details of a possible compromise.
"We have found an agreement on further fiscal reductions that probably will be appreciated by the EU," Deputy Prime Minister Matteo Salvini, leader of the right-wing League party, said after the meeting, Ansa news agency reported.
He did not give any details. Italy's original budget proposal envisaged a deficit equal to 2.4 percent of gross domestic product in 2019, up from 1.8 percent this year. The revised plan presented last week lowered that to 2.04 percent.
"We are optimistic" that the EU won't open a disciplinary action, economy ministry undersecretary Massimo Garavaglia said later in an interview with state-owned radio RAI.
Time is running out to finalise the 2019 budget law, which must be passed by the end of the year. The government summit ended after more than four hours and few details were given.
Salvini and his coalition partner Luigi Di Maio, leader of the anti-establishment 5-Star Movement, have agreed with Prime Minister Giuseppe Conte that any deal with Brussels must not interfere with their flagship reforms - income support for the poor and a lower retirement age.
"(There is) total agreement between Conte, Salvini and Di Maio on the numbers and contents of the proposal to send to Brussels," Salvini's spokeswoman said in a statement as the government meeting neared an end.
"RELAXED" ATMOSPHERE
The spokeswoman denied tensions within the government and a media report that Conte had threatened to resign.
"I can only say the atmosphere was relaxed because that's the truth. We have faced political issues and we have solved them," said Garavaglia, who is a League lawmaker.
He also said Salvini and Di Maio had agreed that savings would come from revisions to both the income support scheme and the pension reform.
"This does not cause a problem in 2019 and it allows the two measures to run for the three-year budget term," Garavaglia said.
Also included in the budget are measures to raise taxes on luxury cars in order to provide incentives for electric and hybrid models, the League spokeswoman added.
An earlier version of the measure had put Salvini and Di Maio at odds over plans to raise taxes on a wider range of fuel-powered cars.
Andrea Montanino, chief economist of the business lobby Confindustria, said in a television interview with private broadcaster La7 on Monday that the revised budget "does not make Italian public accounts any better".
He added that "in theory" the EU Commission should still have objections but underlined that the final decision is up to the EU political leaders.
The yield gap between Italian bonds and benchmark Germany's narrowed on Monday as chances of a rapprochement with the European Union grew.
(Reporting by Steve Scherer and Giselda Vagnoni; Editing by Daniel Wallis and Gareth Jones)
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