Rome plays the long game with Brussels

The European Commission has found itself shadow boxing with the Italian government as different ministers send mixed messages about the country's budget plans. Brussels has rejected Italian proposals to run a 2.4% budget deficit next year and announced last week that it is considering disciplinary action that opens the way to multibillion-euro fines.

Five-Star leader and deputy prime minister Luigi Di Maio and economy minister Giovanni Tria both indicated this week they are open to tweaking the budget, temporarily calming markets. Yet on Monday the country's prime minister Giuseppe Conte and deputies Di Maio and Matteo Salvini of the League party said that the objectives for the budget had "already been fixed".

In apparent imitation of the Brexit pantomime, Rome has put on its own "surreal piece of theatre ahead of the festivities this year", says Ferdinando Giugliano for Bloomberg.

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The theme? A "servant of two masters". PM Conte has been shuffling back and forth between the Commission in Brussels and his populist masters in Rome. Yet the proposed budget is still full of "irresponsible giveaways", such as a lower pensions age, that are not so amusing.

The trouble is that the right-wing Salvini and the left-leaning Di Maio "might be happy to cut the other's preferred promises, but not their own". At least Salvini has struck a more conciliatory tone as he tries to extract concessions from the EU. Perhaps "recent struggles with debt issuance" have "concentrated populist minds".

Italy's response to pressure from Brussels and the markets may be better orchestrated than it appears. Talk of compromise might be a "ploy" to keep the spotlight off Italy's sovereign debt, CMC Markets analyst David Madden told City AM. Di Maio and Salvini may be playing a long game, distracting investors with conciliatory words while working to pass the budget in parliament.