By Tommy Wilkes and Dhara Ranasinghe
LONDON (Reuters) - Italy's Economy Minister Giovanni Tria sought to reassure investors on Tuesday, saying that Rome can avoid European disciplinary action over its budgetary plans by cutting spending, and it would meet its budget deficit target for 2019.
The European Union looks increasingly likely to impose disciplinary procedures on Italy over the management of its huge public debt, after inconclusive meetings on Friday between the Italian finance minister and his EU partners.
Speaking to bond investors and bankers at a conference in London, Tria said that Italy would not breach European rules this year but instead "compensate" for excesses by lowering spending.
He urged participants to ignore the "noise" coming out of the ruling coalition in Rome, in which populist parties from the far-right and left govern in an uneasy alliance, and instead focus on actual government commitments.
"We don't want to create problems in Europe. We have to reinforce the trust of investors in Italy's financial situation," Tria told the audience.
He said Italy would meet a deficit target of 2.1% for this year by cutting spending rather than hiking taxes, and noted that expenditure on social welfare programs in 2019 was lower than previously forecast.
Italian government sources have said that while Italy believes it can satisfy the European Commission's demands over its public accounts for this year, the real sticking point in negotiations is now about 2020. Tria did not comment on 2020 deficit targets on Tuesday.
The tough task facing Tria, who is seen as a moderate in the government, as he tries to reassure financial markets was underlined on Tuesday.
Deputy Prime Minister Matteo Salvini said on the sidelines of a conference in Rome shortly after Tria had finished speaking in London that Italy would press ahead with plans for "mini-bots" unless a better solution was put forward.
The mini-BOTs, named after short-term bills or BOTs, are a proposal of Salvini's far-right League party designed to settle overdue state payments, but which have raised concerns among investors they could become a parallel currency.
Some politicians in Italy say they need the freedom to increase fiscal spending to kickstart the economy.
Tria said the notion of "mini-bots" was not on the agenda. "We don't need this kind of instrument," he said.
Rome is stuck in a tussle with Brussels over its spending plans. Investors worry that the row will not help Italy cut its vast debt pile, and at worst embolden politicians to push for Italy's exit from the euro.
The next step in the standoff is expected to be a June 20-21 Brussels summit, where Prime Minister Giuseppe Conte will try to plead Italy's case with outgoing Commission president Jean-Claude Juncker and EU leaders.
Fitch Ratings' managing director Tony Stringer said on Tuesday that he was not convinced Italy could meet the 2.1% deficit target for 2019. Fitch predicts Italy's deficit at 2.7% of GDP for 2020.
"It looks more and more difficult politically to meet their fiscal targets," he said on the sidelines of Tuesday's conference. "And politically it's always hardest to cut spending."
Italy's main problem was not debt but the "structural" lack of economic growth, Tria said. Any recovery would depend on improving growth in the likes of European powerhouse economy Germany, where there was room for fiscal expansion.
He said demand for Italian government debt remained strong because of the relatively high interest rates investors earn versus other countries, and that Italy had so far raised about 50% of its funding needs for 2019.
(Reporting by Tommy Wilkes and Dhara Ranasinghe, editing by Ed Osmond)