Rome sparked disquiet last week by unveiling a budget that set the public deficit at around 2.4 percent of gross domestic product (GDP) for the next three years, earning a rebuke from the EU and stoking investor fears that Italy's mammoth debt could grow further.
Prime Minister Giuseppe Conte moved to row back slightly on Wednesday, saying the country was now eyeing deficits of 2.1 percent in 2020 and 1.8 percent in 2021. He had earlier vowed to speed up Italy's efforts to reduce its public debt, which is at a sky-high level of 131 percent of GDP -- the eurozone's second biggest after Greece.
The announcement came after Finance Minister Giovanni Tria said the deficit would be squeezed after 2019 because Rome saw reducing public debt as "fundamental".
It was a sharp change in tack from Italy, after Deputy Prime Minister Matteo Salvini on Tuesday threatened to seek damages from European Commission president Jean-Claude Juncker for scaring off investors by attacking Rome's budget plans.
The yield on Italian government bonds has spiked higher in recent days, with worried investors demanding more interest to hold onto Italian debt, making it more expensive for Rome to borrow on international markets. The closely-watched spread between the rates on ten-year bonds paid by Italy compared with those offered by Germany, which is a measure of the added risk perceived by investors to holding onto Italian debt, hit the highest level in a month on Monday.
European Commissioner for Economic Affairs Pierre Moscovici, who angered Rome earlier this week by urging it to tell Italian people the truth about the need for sound spending, reinforced his criticisms on Wednesday.
"The Italians have... chosen a resolutely eurosceptic and xenophobic government that, on issues of migration and budget, is trying to get out of its European obligations," he said on the fringes of an OECD forum meeting in Paris.