The EU is about to take an unprecedented step on Italy

Lester Mason
October 23, 2018

The European Commission rejected Italy's draft budget Tuesday, the first time the European Union executive has thrown out a government's spending plans since the single currency was introduced almost 20 years ago.

The EU has given the Italians three weeks to come up with a new budget proposal after the original had caused consternation in Brussels due to the increase of spending to around 2.4 percent of GDP in order to pay for the basic income policy proposed by the Five Star Movement.

If Rome refuses to budge, Brussels' next step would be to open an "excessive deficit procedure" that could end with financial sanctions in 2019.

The Commission has previously dealt with France, Spain, Portugal and previous Italian administrations that broke European Union fiscal rules, but none of those violations were as blatant as the latest Italian budget draft, the Commission said.

Commission Vice-President for the Euro Valdis Dombrovskis said Italy's response to the commission's concerns was "not sufficient" to assuage fears and the euro's rules were the same for everybody.

Yields of Italian benchmark 10-year bonds surged on the news to 3.57 percent in the afternoon from 3.42 early on Tuesday.

The EU executive warned last week in a letter to Rome that the budget represented an "unprecedented" deviation from Italy's previous fiscal commitments, while Italian ministers have traded insults with commissioners.

In recent days Italy has adopted more moderate tones but Prime Minister Giuseppe Conte has said there is no reason to change the deficit target.

A spokeswoman for the economy ministry in Rome defended the expansionary budget and said Italy stuck by its position that the only way to cut public debt was by boosting economic growth.

Other reports by Iphone Fresh

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