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 for Europe and an unprecedented deviation of EU rules.

Italy’s plans to increase spending instead of cutting budgets “are unprecedented in the history of the Stability and Growth Pact,” the EU’s top economic affairs officials wrote in a letter to Rome, referring to the bloc’s rules on public spending.

In the letter, Commission Vice President Valdis Dombrovskis and Commissioner Pierre Moscovici said the 2019 budget was in “serious non-compliance” of EU law.

Crucially, this meant the Italian budget can be rejected by Brussels and sent back for revision this month, a move that would be a first in the European Union.

The commission gave the Italian government until Monday October 22 at 1200 CET (1000 GMT) to respond to the concerns.

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Underlining the sensitivity of the matter, the letter will be delivered by Moscovici in person to Italian Finance Minister Giovanni Tria in Rome.

The officials met after EU leaders in Brussels discussed the eurozone, with harder line speakers — most notably from the Netherlands — denouncing Italy’s decision to go on what they see as a spending spree.

On the sidelines of the summit, Italian Prime Minister Giuseppe Conte met Dutch Prime Minister Mark Rutte and Chancellor Angela Merkel of Germany, where criticism of Rome’s populist government also runs high.

“This is not the budget the Commission expected. It is understandable that there are reactions. I expect some critical observations,” Conte said in Brussels.

Italy’s coalition government submitted its draft 2019 budget to the European Commission on Monday that announced a big wave of extra spending to fullfil electoral promises.

The spending boost is essentially due to what the government calls its “people’s budget”, a series of pension and tax changes that will cost 37 billion euros ($43 billion), of which 22 billion will be paid for by expanding the deficit.

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

The brash attitude of Italy’s anti-establishment government 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.