By David Thomas

BRUSSELS(MNI) – As concerns grow over a eurozone slowdown, European officials are increasingly hopeful of a deal to avoid placing Italy in the Excessive Deficit Procedure, despite misgivings among harder-line countries such as Germany and the Netherlands, according to sources close to the Commission and Eurogroup.

One source confirmed to MNI that both the Commission and Council of Ministers are seeking a “fudge”.

“The fact is [Italian] government spending and revenues have been looking better in recent months,” another EU source said.

One source close to deliberations in the Eurogroup said Economic Affairs Commissioner Pierre Moscovici had told eurozone finance ministers at their mid-June meeting that if Italy came up with the “numbers and the measures” then a deal was achievable.

“There is no political appetite [in the Eurogroup] for a collision with Italy,” the contact said.

That said, harder-line ministers would be concerned about potential damage to the credibility of the EDP procedure, particularly following the failure of Italy to live by the terms of the last budget deal it struck with the Commission in December 2018.

Some ministers are also concerned that Italy’s longer-term plan to reduce its debt ratio, of 132% of GDP, is overly dependent on a commitment to hike VAT in 2020, a pledge which is not entirely trusted by EU officials based on their recent chequered experience with the country’s fiscal management.

“They have committed to do this in the past and it’s been ditched at the first sign of political trouble,” one source said.

Germany and Netherlands may seek to propose instead that Italy be placed in a “significant deviation” procedure, under which they would have to take pre-emptive action – structural measures and reforms – to steer the structural deficit back on track.

Ministers could discuss next steps at their next Eurogroup meeting on July 8 but others suggest it is entirely possible that a decision could yet be pushed back to September.

What has brought on the new, more emollient tone towards Italy is not completely clear, although one official suggested, “maybe Italy has other, important political cards to play.”

EU leaders are due to discuss a share-out of top EU jobs on Sunday night, including the presidency of the Commission, the Council and the ECB and any final decision could involve opaque political trade-offs between EU countries.

Another official suggested that growing concern that the current economic slowdown in the euro zone area could turn into something more serious is the major root cause of the new pragmatism towards Italy and pointed to ECB President Mario Draghi’s dovish policy signals in his June 18 Sintra speech.

“The financial stability of the eurozone is becoming more of a factor,” one official said.