Italy PM to meet coalition leaders to decide government's future

FILE PHOTO: Italian Prime Minister Giuseppe Conte looks on as he holds a news conference at Chigi Palace in Rome

MILAN (Reuters) - Italian Prime Minister Giuseppe Conte has renewed his threat to resign ahead of a meeting with the ruling coalition's two party leaders on Monday, warning of market turmoil unless they are ready to compromise in a budget row with the European Union.

Conte will meet League chief Matteo Salvini and 5-Star party boss Luigi Di Maio, both deputy prime ministers, to try to patch up differences between the pair and agree a strategy for avoiding EU disciplinary action over the 2019 budget.

It will be the first such meeting since Conte, a technocrat who belongs to no political party, first threatened to resign a week ago after weeks of internal bickering and comments by Salvini that Rome was prepared to break EU fiscal rules.

Conte renewed that threat in an interview published on Monday by newspaper Corriere della Sera.

"A procedure could expose the nation to market shocks and possible credit downgrade that would make it more difficult for the government to sell its debt," Conte was quoted as saying.

Italy has around 2.3 trillion euros ($2.6 trillion) in state debt which, as a proportion of economic output, is second only to Greece in the euro zone. Its economy is chronically stagnant and its year-old populist government has embarked on a programme on welfare spending and tax cuts to revive it.

Though the 2019 budget deficit is within EU rules, its mountain of debt is growing according to the European Commission which has threatened to start disciplinary action.

In a sign of tensions inside cabinet, Italy's coalition parties took aim at the weekend at Economy Minister Giovanni Tria, also a technocrat, who had rejected their plan to issue special government bonds to help pay state debts.

Tria condemned the plan on Saturday, saying the so-called mini-BOTS would be either illegal or useless.

In a radio interview Di Maio said he expected the trio to agree later on Monday on a minimum salary, tax cuts and curbing privileges for politicians and policymakers.

($1 = 0.8852 euros)


(Reporting by Giselda Vagnoni; Editing by Mark Bendeich)