Italy govt agrees on 2.4 percent deficit-gdp target for 2019: source

By Giuseppe Fonte and Angelo Amante

ROME (Reuters) - Italy's government has agreed to target next year's budget deficit at 2.4 percent of gross domestic product, a source in the prime minister's office said on Thursday, ending a tussle between the ruling parties and the economy minister.

The coalition of the 5-Star Movement and the League had been pushing for a deficit around 2.4 percent of GDP to fund costly policy pledges, while Economy Minister Giovanni Tria had wanted a figure below 2 percent.

"An accord has been reached at 2.4 percent," the source said, following meetings between party chiefs and Tria.

The full cabinet began meeting at around 1900 GMT to sign off on the government's economic and financial targets for the next three years.

Some coalition voices had publicly told Tria he should quit if he couldn't back their spending plans as Tria had insisted the 2019 fiscal deficit should not exceed 2 percent of national output.

The ruling coalition made up of the anti-establishment 5-Star Movement and the right-wing League had been pushing Tria, an academic not affiliated to either party, to ramp up the fiscal deficit to finance their promises of tax cuts and higher welfare spending.

The coalition parties say the priority must be financing policies including a basic income for the poor and a reduction in the minimum retirement age, rather than meeting deficit goals previously agreed with Brussels.

"We are at an historic crossroads and we can't backtrack by a centimetre," Di Maio said on Facebook, calling on the government to remain united behind what he has dubbed the "People's Budget."

Financial markets have been nervous since the government took office in June due to fears its spending plans will boost Italy's debt, which is already the highest in the euro zone after Greece's as a proportion of GDP - around 131 percent.

Tria said on Wednesday the budget would include the parties' flagship policies, including the basic income for the poor and a lower retirement age, though it remains unclear how wide-ranging such measures will initially be and how they will be financed.

The League and 5-Star, rivals ahead of an inconclusive election in March, say they will govern together for a full five-year term and phase in most of their policies gradually.

(Additional reporting by Massimiliano Di Giorgio and Giselda Vagnoni in Rome and Francesco Guarascio in Brussels, writing by Steve Scherer and Gavin Jones, Editing by Toby Chopra, Jon Boyle, William Maclean)