European Commission ups the ante against Italy in budget row

Brussels – The European Commission on Wednesday rejected Italy’s 2019 spending plan for contravening EU fiscal rules, paving the way for European Union sanctions procedures to begin against the indebted member state.

Sanctions process against Italy

“It is with regret that today we confirm our assessment that Italy’s draft budget plan is in particularly serious non-compliance,” Commission Vice President Valdis Dombrovskis said.

Based on the commission’s analysis, he added, a sanctions process known as an excessive deficit procedure (EDP) is warranted against Italy for failing to reduce its public debt, which stands at more than 130 per cent of gross domestic product (GDP).

The EDP is a process that sets fiscal deadlines and targets for member states in breach of eurozone fiscal rules. If EU member states agree with the commission in the next two weeks, the EDP could then be launched soon against Italy, according to EU Economy Commissioner Pierre Moscovici.

Italy and the commission have been at odds for weeks over Rome’s spending plans. In October, the commission rejected Italy’s initial 2019 budget plan, which Rome projects will produce a deficit of 2.4 per cent of GDP.

Dombrovskis and Moscovici pointed to the size of Italy’s public debt – the second largest ratio in the eurozone – as the top concern.

Rome’s policy runs “a risk of the country sleepwalking into instability,” Dombrovskis said.

Italy’s populist government has refused to budge, and it resubmitted its budget last week largely unchanged.

Italy’s Deputy Premier and Interior Minister Matteo Salvini blasted the commission’s pronouncement on Twitter, saying that Italy, as a net payer into the EU budget, deserves “respect.”

Brussels to maintain cooperation with Rome

Meanwhile, a leading member of the governing Five Star Movement (M5S), Francesco D’Uva, insisted that Italy’s decision to increase its deficit does not violate any EU rules.

“We are telling citizens to not be afraid because we are not backing down: we were not voted in to pursue the same destructive policies of previous governments,” he said.

Dombrovskis, however, emphasized the commission’s view that Rome’s plan would hurt the economy.

“It does not contain significant measures to boost potential growth, and the uncertainty and rising interest rates are taking toll on [the] Italian economy,” he said.

Moscovici said the decision to reject Italy’s budget resulted from Rome’s intransigence and failure to address Brussels’ questions.

“Where will this extra growth come from?” he asked. “Who will pay the bill for this extra spending?”

Dombrovskis and Moscovici also emphasized that Brussels wanted to maintain cooperation with Rome.

“Dialogue and cool blood are more than ever required,” said Moscovici.

Outside of Italy, the commission said five states are non-compliant: Belgium, France, Portugal, Slovenia, and Spain.

However, the commission had largely good news for other eurozone members. It congratulated Greece for sticking with the EU’s fiscal targets since its bailout, and noted that all eurozone members have projected deficits under 3 per cent for 2018 and 2019 – the first time ever since the introduction of the euro.