The European Commission and Italy have agreed on the path to bring the country's budget deficit back under the European Union ceiling and are likely to set a target date of 2007, according to media reports yesterday.

According to the Corriere della Sear newspaper, EU Monetary and Economic Affairs Commissioner Joaquin Almunia will not recommend a corrective mini-budget to bring its deficit under 3 per cent of gross domestic product in 2005.

But Italian economy minister Domenico Siniscalco has agreed to have Italy's deficit in line by 2007, the paper said. Prime minister Silvio Berlusconi said on Friday that it would take until 2007 for Italy to be back within EU deficit rules.

Mr Almunia's spokeswoman, Amelia Torres, said she could neither confirm nor deny the report.

"Our recommendations on the budgetary situation in Italy are being finalised and I expect it to be adopted on Wednesday," she told reporters.

Ms Torres also said she was confident the Ecofin Council of finance ministers would adopt the commission's recommendations at a planned meeting on July 12th.

"I know it's a good agreement," Mr Siniscalco told reporters when asked about the deal on the deficit at a meeting in Modena.

The commission has launched an excessive deficit procedure against Italy as its deficit breached the EU's cap in three of the last four years and is set to do so again in 2005 and 2006.

In its recommendations, the commission is likely to suggest a path for Italy to bring its deficit in line by the expected deadline, as was the case in previous recommendations to other member states that breached the EU cap, a source said. - (Reuters)