ITALY insisted yesterday it was on course to meet the targets required for membership of the single currency union after European Union (EU) forecasters warned that it could fall wide of the mark.
Deputy Prime, Mr Minister Walter Veltroni, was quoted as saying a mini budget would do enough to ensure Italy met a public deficit goal of 3 per cent of gross domestic product - a vital target for joining European economic and monetary union (EMU).
"Our commitment from the moment we began working had been to achieve the 3 per cent of deficit to GDP and thus enter Europe. We think the mini budget is sufficient to meet that objective," Mr Veltroni said.
Prime Minister Mr Romano Prodi's centre left administration has drawn up a £5.8 billion supplementary budget in a sustained effort to thrust Italy into the first wave of EMU members in January 1999.
Mr Prodi suffered a setback yesterday when the budget commission of the lower house of Italy's parliament voted against the mini budget, making it almost inevitable that the government would put the package to a confidence vote.
Mr Veltroni made his remarks after EU sources in Brussels said officials at the European Commission were now forecasting that Italy's deficit would hit 3.2 per cent this year, overshooting the target spelt out in the 1991 Maastricht.
The source said the figure, worked out by officials "at a technical level", could be altered before the Commission releases its spring forecasts next Wednesday.
Commission forecasters are widely believed to come under pressure from EU member countries when preparing the sensitive forecasts to present them in a flattering light.
Italy is not the only country in trouble over meeting the 3 percent target. Most independent economists see Germany falling short of the goal as its struggles to overcome sluggish growth.
Germany has been demanding strict compliance with the targets to protect the credibility of the new euro currency.
The Italian government's latest declaration of intent came at the end of a week of frenzied speculation that France and Germany are cooking up a deal to freeze Italy and Spain out of the initial phase of EMU. The EU will decide who makes the grade for monetary union in early 1998. Countries which want to join have to meet key criteria on debt, inflation and budget deficit levels in 1997.
Influential Italian business newspaper Il Sole 24 Ore has reported that Bonn and Paris are working on a plan to keep Italy out of EMU's debut but France, Germany and Italy all denied on Wednesday that any secret deals were afoot to block Italy.
France also issued a strong denial yesterday of reports that President Jacques Chirac had recently told German Chancellor, Mr Helmut Kohl, he had withdrawn support for Italy's drive to join EMU.
"I am sure there is a lot of contingency planning going on among diplomats and maybe this is what is surfacing in the media," said Mr Daren Williams, an economist at UBS in London.
Mr Padoa Schioppa, who heads stock exchange regulator Consob, said it would be "catastrophic" if Italy did not reach the 3 per cent target without first having taken steps to stabilise the budget permanently.
"But the picture would be different if, having consolidated the process of adjustment for 1998 and following years, we found ourselves at the end of 1997 a few fractions of a point above the 3 per cent," Mr Schippa said. This would enable Italy either to join EMU straightaway or to have a date set for entry later on, he said.
