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Amid all the tensions these last few months between Rome’s populist government and Brussels, there has been one reassuring constant: the soothing tones of Italian finance minister Giovanni Tria.

Despite repeated threats from the leaders of Italy’s governing coalition, especially during its early days in office, to rip up the EU’s budget rules, Mr Tria has consistently calmed the waters — telling the European Commission that he will not sign up to any spending plan that smashes debt and deficit limits. The time is now fast approaching when Brussels will see if he can deliver.

The signals from Rome are that Mr Tria, a technocrat unaffiliated with either of Italy’s governing parties, is coming under renewed pressure  from both the far-right League and the populist Five Star Movement to increase the country’s budget deficit to levels that would make the commission wince.

While the deficit, which stood at 2.3 per cent of GDP last year, is well below the EU limit of 3 per cent, the country is required under euro area budget rules to make further efforts to get it down in order to reduce its considerable public debt. Although Brussels has a record of showing leniency in how it applies the rules — not least to Italy — there are limits to what it can accept without making a mockery of the system it is supposed to enforce.

A key moment will come later this week when the government will update its economic and fiscal forecasts — a preparatory step for the draft budget that Rome must send to Brussels by mid-October. Mr Tria’s intention is for Italy’s deficit in 2019 to be around 1.6 per cent of GDP — a level that Brussels would find hard to dispute, but which risks choking off the governing parties’ most cherished policies.

For Five Star, that means less money for its plans for a basic income to help lift people out of poverty; for the League, and its leader Matteo Salvini, it means less scope to press ahead with tax cuts. The government also wants to undo previous pension reforms.

Luigi Di Maio, the Five Star chief, denied reports last week that he had threatened to quit the government if more money was not found. But the pressure being brought to bear on the finance ministry was made clear by a leaked recording of a government spokesman warning of a “mega vendetta” against officials who blocked spending plans.

For Mr Tria, the balancing act is an extremely difficult one: push Brussels, but not too far; constrain spending commitments, but not so much as to incur the wrath of the government’s true leaders; and do all that while convincing jittery bond investors that Italy can manage its (and their) money. 

But for Mr Tria one problem looms above all, and that is that the whole exercise depends on Italy’s headstrong new leaders actually being ready to compromise. 

Chart du jour

The FT’s John Authers puts the spotlight on the high degree of volatility affecting UK government bonds compared with US Treasury bonds since Britain voted to leave the EU. The pattern is clear: every time Mrs May takes a big step away from the EU and towards a hard or no-deal Brexit, investors take fright:

The worst days tend to come when the prime minister makes a big attempt to stake out a position that the market does not like. James Carville, Bill Clinton’s political svengali, once said that he wanted to be reincarnated as the bond market, because the bond market had so much power — and the bond market is sending very negative messages about the chances that Brexit can be made a success.

Trans-Europe Express

Macron / Macroff
French president Emmanuel Macron must be getting wearily familiar with reports of his declining popularity, but the IFOP survey published in Sunday’s Journal du Dimanche is especially bleak: only 29 per cent of respondents were satisfied with his performance as president (with a paltry 3 per cent very satisfied). The paper notes that his support base has now effectively fallen back to the people who voted for him in the first round of last year’s election.

The New York Times this morning looks at why voters are turning against him. Former French president François Hollande thinks the blame is pretty simple: Mr Macron's "excessive behaviour" and "unjust decisions”. (Le Monde)

Merkel spooked
The German chancellor is struggling to hold her coalition government together as parties war over the fate of former spy chief Hans-Georg Maassen ( FT)

Arresting developments
Three journalists were detained in Greece over the weekend. The reason: upsetting a minister with a report relating to the potential misuse of EU funds for migrants. (Volkskrant).

North poll
The FT’s Valerie Hopkins reports on efforts to convince Macedonians to vote in favour of the deal to rename their country Republic of North Macedonia. They include “EU for you” chocolates. ( FT)

The Jungle returns
The American conservative author Robert Kagan has a new book arguing that as the US retreats the rest of the world is returning to its natural, Hobbesian state. What is the region of the world that concerns him most? (NYT)

“The crucial issue is not the Middle East or even Russia, and it may not even be China. The big game is what it’s been for over a century. If we lose Europe, if we send Europe back to its normal condition, it’s over.”

Dirty laundering
Fed up with this year’s string of financial conduct scandals, the European Commission has called for a probe into Denmark and Estonia’s handling of Danske Bank ( FT)

Planet Brexit

Labouring over Brexit
UK opposition leader Jeremy Corbyn plays down the need for a second Brexit referendum despite overwhelming backing from members of his Labour party for a People's Vote ( FT

Irish border
Don't miss Stephen Rea's powerful video from the Irish border. "Jacob Rees-Mogg you're right. You don't need to visit the border…you need to have lived here." ( FT)

No deal fear
Wolfgang Münchau sees Britain crashing out of the EU without an exit agreement as the single most probable scenario (unless the EU begins to realise that's the case and understands the consequences).

For as long as the expectation of a Brexit reversal or a UK climbdown persists, there can be no deal. It is possible that the EU’s position will shift as we approach a no-deal Brexit. UK voters, having voted for Brexit, may be prepared to pay an economic price to leave. Continental voters and companies are not similarly primed to make a sacrifice and many EU jobs are at stake. Germany and the Netherlands have massive bilateral trade surpluses with the UK.

Economists persist in pointing out that a no-deal would be worse for the UK than the EU. This is trivially true but fails to recognise a more important point: the EU has a much lower political pain threshold for a hard Brexit.

jim.brunsden@ft.com@jimbrunsden

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