The new deficit target would be three times the 0.8 per cent borrowing goal set by the previous centre-left administration, sparking EU fears.
A war of words between Rome and Brussels has seen the euro under pressure, with investors also spooked over Italian spending plans.
The pound was trading flat against the euro this morning at a rate of €1.140, the same highs the currency saw yesterday, before dropping slightly to €1.138, according to Bloomberg.
Deputy Prime Minister Matteo Salvini stood defiant on the budget plan yesterday, warning Brussels there is “no plan B” for the nation.
Mr Salvini, who is also leader of the ruling League party, said in a statement: “We go ahead calm and responsible.
“There are no plan B or backtracks. We are convinced that the planned budget measures will create jobs and wealth.”
European Affairs Minister Paolo Savona said on Monday he was confident Italy would reach an agreement with the EU over the budget plan.
The Italian government has already pledged to reduce the headline deficit to 2.1 percent in 2020 and to 1.8 percent in 2021.
When asked if he was concerned about another debt crisis, Mr Savona said at a news conference: “I am confident that (Mario) Draghi will take care of things.
“… if necessary the ECB would prevent another grave crisis in Europe.”
The steady pound euro exchange rate comes despite reports of Theresa May reportedly warning EU chiefs that Britain is prepared to walk away from an EU summit next week if the bloc concede “major ground”.
Cabinet members are due to meet for crunch talks at the European council meeting.
The International Monetary Fund (IMF) took aim at Brexit today as it warned of how slow progress in thrashing out an EU divorce deal for Britain is creating “pervasive uncertainty” about future trade costs.
In a somewhat gloomy prediction, the IMF slashed its global growth forecast as it revealed it was now predicting 3.7 percent global growth in both 2018 and 2019.
This is down from its July forecast of 3.9 percent growth for both years.
The UK economy is expected to grow by 1.4 percent this year – down from April’s prediction of 1.6 percent – while predicted growth for 2019 remains at 1.5 percent, a slowdown from 1.7 percent in 2017.
For the UK, it recommended interest rates by raise to tackle inflation, but urged the Bank of England to remain “flexible”.
The report said: “In the United Kingdom, where the output gap is closed and unemployment is low, a modest tightening of monetary policy may be warranted, although at a time of heightened uncertainty, monetary policy should remain flexible in response to changing conditions associated with the Brexit negotiations.”
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