EU moves towards disciplining Italy on budget, Rome remains defiant

[November 21, 2018]   BRUSSELS/ROME (Reuters) - The European Commission took the first step on Wednesday towards disciplining Italy over its draft 2019 budget but Rome said it had no intention of changing its plans, setting up a confrontation that could last months and eventually lead to fines.

The Commission said the expansionary budget, which raises the deficit to 2.4 percent of gross domestic product from 1.8 percent this year, was "a particularly serious case of non-compliance" with its recommendations.

The EU executive therefore launched an "excessive deficit procedure" based on the fact that Italy's huge public debt would not come down as required by EU rules.

Italy's debt, at more than 130 percent of GDP, is proportionally the second highest in the euro zone after Greece's.

"The impact of this budget on growth is likely to be negative in our view. It does not contain significant measures to boost potential growth, possibly the opposite," European Commission Vice President Valdis Dombrovskis said. "With what the Italian government has put on the table, we see a risk of the country sleepwalking into instability."

The Commission, which checks that draft budgets comply with EU limits on deficits and debt before they are voted on by parliaments, rejects Rome's argument that by expanding the budget it can boost economic growth and revenues, bringing down the debt as a proportion of GDP.

European Union and Italian flags are seen in downtown Rome, Italy, October 19, 2018. REUTERS/Alessandro Bianchi

It is backed by euro zone governments worried that Rome's borrow-and-spend plans could trigger another debt crisis that would hurt them all.

The excessive deficit procedure could result in fines against Italy, though these have so far never been levied against any euro zone country.

In Rome, the government of the right-wing League and the anti-establishment 5-Star Movement, remained defiant.

"We are convinced about the numbers in our budget. We will talk about it in a year's time," Deputy Prime Minister and League leader Matteo Salvini told reporters.

Fines against Italy would be "disrespectful", Salvini added.

(reporting by Jan Strupczewski and Gavin Jones; editing by David Stamp)

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