Published: Wed, October 24, 2018

European Union rejects Italian draft budget, setting up standoff with defiant Italy

European Union rejects Italian draft budget, setting up standoff with defiant Italy

The conservative Austrian leader warned that if Italy's budget goes through, then other countries could follow the Italian lead and cause further market instability, Il Giornale reports. The tangle contributed to a selloff in global equities.

The Italian government has repeatedly stated this month that it won't be changing the controversial 'people's budget'.

"The Italian Government is openly and consciously going against the commitments it made".

"We won't subtract one single euro form the budget", Deputy Prime Minister Matteo Salvini told reporters while in Bucharest.

"Today for the first time the Commission is obliged to request a euro area country to revise its draft budgetary plan", said EU Vice President Valdis Dombrovskis, adding that the bloc's executive arm saw "no alternative" to the rebuke. Italy's government has said it will increase public spending despite having the second-highest national debt in the eurozone.


The populist Italian government will have three weeks to respond with revisions of their proposal.

If Italy fails to comply, the European Union could impose fines of up to 0.2 percent of GDP, or 3.4 bn euros ($3.9bn), based on 2017 figures.

The unprecedented decision to ask for a rewrite was taken by the 28 commissioners during a meeting in Strasbourg, France, AFP's source said. "Under the Stability and Growth Pact, addressing excessive debt requires a 1/20th per annum reduction in the difference between the debt-to-GDP ratio (132% of GDP) and the 60% Maastricht ceiling".

Italian yields surge on the European Commission's rejection of Rome's budget plan, as Italy faces disciplinary action if it does not comply.

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"Experience has shown time and again that higher fiscal deficits and debt do not bring lasting growth. And excessive debt makes your economy more vulnerable to future crisis", said Dombrovskis.

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