Luxembourg – Eurozone finance ministers have warned Italy to abide by EU rules on public spending, as Rome accused Brussels of economic “terrorism”.
The war of words took place just days after Rome announced a big spending boost in defiance of the European Union that has spooked the markets and has EU capitals fearing a return of the debt crisis.
“I’m somewhat less optimistic after having talks with colleagues than beforehand,” Dutch Finance Minister Wopke Hoekstra said after a meeting with his eurozone counterparts on the issue.
“If this was meant to test the water, then it seems like work has still to be done,” he added late Monday.
EU countries with the highest levels of public debt
The fragile state of Italy’s economy has reawakened memories of the crisis amid dangers that Rome could face punitive measures by its EU partners if it insisted on breaking the bloc rules on running excessive deficits and high debt.
Fallout from the budget plans shook markets again on Monday, with the closely-watched “spread” between the rates on 10-year debt paid by Italy compared with those offered by Germany hitting a month high.
“It is up to the Italian government to show that it has a sustainable and credible budgetary plan,” said Eurogroup chief Mario Centeno, who is also Portuguese finance minister.
Italy drafted a controversial budget on September 27 that raises spending, pushes the public deficit to around 2.4 percent of gross domestic product and that will hike the public debt above its already sky high level of 131 percent of GDP.
The previous government was aiming for a deficit of 0.8 percent of GDP that would help cut debt though possibly hamper economic growth.
“I just want to make very clear that there are rules and the rules are the same for every state because our futures are linked,” said French Finance Minister Bruno Le Maire.
Given the growing worry, Le Maire and Hoekstra had requested that Italy be put on the agenda, sources said.
In the talks sources said Italian Finance Minister Giovanni Tria struggled to defend Rome’s budget plan amid rumours that he had recently considered resigning on objections to his government’s tough stance.
Tria urged his European partners to “stay calm” ahead of the sitdown in Luxembourg.
“I will try to explain what is happening and our intentions,” he said.
– Market ‘terrorism’ –
EU Economic Affairs Commissioner Pierre Moscovici will be tasked with assessing the Italian budget, which is to be officially submitted to Brussels on October 15 and could be revised before then.
Moscovici warned Rome to tell the truth to the Italian people about the need for sound spending, a warning that drew a furious accusation from Rome that the former French finance minister was provoking the markets.
“There are European institutions playing at bringing terrorism to the financial markets,” said Italy’s deputy prime minister Luigi Di Maio who heads the populist Five Star Movement (M5S).
“This morning, obviously, someone was not happy that the spread had not increased… Mr. Moscovici woke up and thought about making statements against Italy to fuel tensions on the markets,” Di Maio told reporters in Rome.
Moscovici said these remarks “made no sense. What I am doing is reminding of the rules.”
Markets were also destabilised on reports that Tria was going to go home early from the Luxembourg in order to confer with his government.
Guillaume Lefebvre, a bond manager at Quilvest Gestion in Paris said: “We can fear that the tug of war with Brussels is only beginning and expect more volatility.”