Italy’s budget standoff (Updated)
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Update:

Brussels has reprimanded Italy’s populist government for breaking EU deficit rules in its first budget, putting the European Commission on course for an unprecedented rejection of a eurozone member’s spending plan.

The EU rebuke helped spook investors already nervous about the new government’s disregard for the rules adopted during the eurozone debt crisis, sending Italian borrowing costs to their highest levels in four years.

The formal notification came in the form of a  letter sent to Rome came in a letter from the EU’s top economic officials to Italy’s finance minister, Giovanni Tria. Brussels has issued such rebukes before, but noted that Italy’s violation was far worse, saying its deviation from prior promises was “unprecedented in the history” of EU budget rules. – Financial Times

EU Commission chief Jean-Claude Juncker says the EU has always been generous with Italy when it comes to assessing its budget, but that the latest draft presented this week would be rigorously vetted to see if it meets EU standards.

Juncker said after Thursday’s summit that some EU leaders had already approached him to make sure not to be too flexible when combing through the details of Italy’s spending plans. The EU has limits for member states’ deficits and debt levels.

Italy’s budget proposal is considered out of line with commitments made earlier, with a proposed deficit of 2.4 percent. While that is below the 3 percent EU ceiling, it is still three times the amount initially promised. And it means Italy’s debt load — which at over 130 percent of GDP is well over the 60 percent limit — will probably not be lowered as promised.

Juncker said: “I had some colleagues on the phone say they don’t want us to add flexibility to already existing flexibility.” He said the EU has no intention of doing so.

Italy’s budget also featured on Politico and EU Observer:

Politico

European Commission President Jean-Claude Juncker on Thursday dismissed Italian accusations of harsh EU treatment of the country in light of Rome’s spending plans for next year.

Italy often points out that France’s past abuse of EU budget rules has gone unpunished and accuses the Commission of hypocrisy. But Juncker reminded Italy that Brussels has been very lenient with the country’s previous budgets when it comes to complying with the EU’s budget and deficit rules.

Juncker told reporters that “Italy was able to spend, over the last three years, €30 billion more without a sanction.”  “We were very kind, gentle, and positive when it came to Italy,” he added. “Because Italy is Italy” — an echo of his 2016 quip about France, which avoided sanctions against spending “because France is France.”

The Eu Observer

“Concerns over Italy’s budget spending adding to the massive debt of the eurozone’s third largest economy could hamper efforts to reform the framework of the EU’s single currency, Dutch prime minister Mark Rutte warned his Italian counterpart on the sidelines of the EU summit on Thursday.

“EU leaders discussed eurozone reforms and the Italian draft budget at their summit in Brussels, with concerns on the rise over the planned budget boost by Rome’s populist coalition government. Italian prime minister Giuseppe Conte held bilateral meetings with the Dutch, German and French leaders. Rutte, who has been increasingly leading a group of fiscally-conservative eurozone countries, said that the expected higher deficit was “not helpful” in the context of the debate about the future of the euro.”[This debate] does not become any easier when such a large member state appears not to stick to the agreements from the stability and growth pact,” the Dutch leader warned. During the meeting with EU leaders, Conte focused his speech on Italian reforms. German chancellor Angela Merkel told reporters after the meeting that Conte briefed her on reforms, from the fight against corruption to the transparent digital structure of public administration, but that on the budget, Italy needs to engage in a “positive dialogue” with the EU commission. Echoing Merkel, Rutte said reforms were “always good”, but that implementing them did not give a state an excuse to increase its deficit beyond what was agreed in the stability and growth pact.”

EU officials have already been warning Italy over its planned 2019 budget, which is expected to increase the country’s debt, which currently stands at 133 percent of its GDP and which is the second biggest in the eurozone after Greece. The EU ceiling is 60 percent.

DE

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