By Giselda Vagnoni

ROME (Reuters) – Italy’s Prime Minister Giorgia Meloni said on Sunday she would lead the government responsibly until the end of its mandate as parliament debates a budget aimed at supporting the euro zone’s third-largest economy while trimming its debt.

Rome, which was put under the EU’s excessive deficit procedure this year, hopes to bring its deficit below the European Union’s 3% of gross domestic product (GDP) ceiling in 2026 from 3.8% targeted this year and 7.2% last year.

Italy’s parliament, in which Meloni holds a large majority, will on Tuesday begin a debate on the 2025 budget, which must be approved by Dec. 31.

“Each of us is aware of the responsibility we have on our shoulders, and we will honour to the last day the task given to us by the Italians in this nation,” Meloni said at a meeting of her Brothers of Italy party in Rome.

Ratings agencies Fitch and DBRS upgraded Rome’s outlook to “positive” from “stable” in October, citing improved fiscal path.

Investors consider the country’s high bond yields as attractive given the stable political situation and the likelihood the European Central Bank’s continues to cut rates.

The premium investors pay to hold Italian government bonds over top-rated German ones narrowed on Friday to around 113 basis points, from more than 240 basis points on Sept. 26 2022, when Meloni’s coalition won the general election.

The positive sentiment in the Italian bond market contrasts with neighbouring France, whose political crisis is seen as an obstacle to reducing its deficit, leading to a credit rating downgrade by Moody’s.

INTERNATIONAL CREDIBILITY

Meloni, who announced her resignation on Sunday as president of the European Conservatives and Reformists (ECR) party, said the stability of her government was Italy’s “greatest element of strength” because it “guarantees international credibility”.

But despite falling annual budget deficits, Italy’s debt, which is proportionally the second-highest in the 20-nation bloc, is forecast by Rome to climb from 134.8% of gross domestic product last year to 137.8% in 2026, before gradually declining.

Economic growth is also a concern, with the latest figures pointing to an annual rate of almost half of 1% forecast.

The 2025 budget funds stimulus measures including income tax cuts for lower earners, while roughly 4 billion euros ($4.20 billion) will be raised from changes to tax on banks and insurance products.

According to amendments to Rome’s 2025 budget seen by Reuters, the government is scaling back plans to cut around 4.6 billion euros from the funds earmarked for the automotive industry between now and 2030 by restoring 200 million euros a year in 2026 and 2027.

Story continues