EU slams Italy's 'unprecedented' deviation from budget rules

[BRUSSELS] The European Commission on Thursday formally warned Italy that its budget plans for 2019 are a serious concern, demanding "clarifications" from Rome over its unprecedented deviation from EU rules.

Italy's populist government on Monday submitted its draft 2019 budget to the European Commission in which it laid out plans to increase spending and end the austerity policies of recent years, despite deficit warnings.

Italy's deficit is now projected at 2.4 per cent of GDP, far higher that the 0.8 per cent estimate given by the earlier centre right government.

Brussels says Rome needs to cut the deficit in order to begin reducing its massive debt, which exceeds 130 per cent of annual economic output - way above the EU's 60 per cent ceiling.

The budget drew stinging criticism from the EU's top economic affairs officials, who penned a letter to Rome describing its plans as "unprecedented" and warning that Brussels does not rule out rejecting the entire budget.

In the letter, Commission Vice-President Valdis Dombrovskis and European Affairs Commissioner Pierre Moscovici said the 2019 budget was in "serious non-compliance" with EU law.

Crucially, this means the Italian budget can be rejected by Brussels and sent back for revision - in what would be a first within the European Union.

The commission gave the Italian government until 1000 GMT on Monday to respond.

Underlining the sensitivity of the matter, Mr Moscovici delivered the letter in person to Italian finance minister Giovanni Tria.

ITALY UNREPENTANT

Aimed at fulfilling electoral promises, Italy's planned spending boost is what the government calls its "people's budget", a series of pension and tax changes that will cost 37 billion euros (S$59.4 billion), of which 22 billion will be paid for by expanding the deficit.

The Italian government's brash attitude towards public spending has spooked financial markets, with many fearing a re-run of the debt crisis that nearly saw Greece kicked out of the eurozone.

"I can not imagine the euro without Italy and Italy without the euro, " Mr Moscovici said after his meeting with Mr Tria during which he delivered the letter.

He added that he would "patiently" await a response from Italy and was looking forward to " a very open, constructive discussion".

Mr Tria for his part said Italy and Brussels had "different evaluations" of the situation, but added that he too looked forward to ""a constructive dialogue".

"Our goal is to increase growth," the finance minister said, adding that the Italian government should communicate better with the European Commission on the reform programme.

The letter was issued as EU leaders gathered for a two-day summit in the Belgian capital which was dominated by Brexit, but where the state of Italy's finances was also on the agenda.

Ahead of the meeting, Italy had on Wednesday insisted it would not budge on the budget, putting Rome squarely on course for a clash with Brussels.

"Room (for changes), I would say there is none," Prime Minister Giuseppe Conte told reporters as he arrived in Brussels for the summit.

On the sidelines of the summit, Mr Conte met with Dutch Prime Minister Mark Rutte and Chancellor Angela Merkel of Germany, both of whom have taken a hard line on the state of Italy's finances.

AFP