By Giovanni Legorano 

ROME -- Italy's government late Monday approved a draft budget law for next year, confirming a set of expansionary measures that could lead to a fast-rising deficit and a conflict with the European Union.

The government, a coalition of the antiestablishment 5 Star Movement and the far-right League, has rattled financial markets in the past month with its budget plans, with investors demanding significantly higher interest rates to buy the country's bonds.

The full draft budget law will be sent to the Italian parliament by Saturday. Lawmakers will need to approve it by the end of the year.

The planned measures included in the draft law are set to widen the budget deficit to 2.4% of gross domestic product, in defiance of EU rules that require a shrinking deficit. EU officials fear the real deficit could be much higher than 2.4%, according to people familiar with the matter.

Rome said it would raise welfare and pension spending and cut taxes, despite the negative reaction from investors and Brussels to its proposals.

EU leaders had already warned that Italy's budget plans represented a "significant deviation" from recommended fiscal policies, raising the prospect of a major clash between Rome and Brussels over the Italian coalition government's plans.

Prime Minister Giuseppe Conte said the government on Monday would send its draft budgetary plan to the European Commission, which could reject the plan and demand changes.

Write to Giovanni Legorano at giovanni.legorano@wsj.com

 

(END) Dow Jones Newswires

October 15, 2018 17:09 ET (21:09 GMT)

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