EU exec arm rejects Italy budget, paves way for sanctions

BRUSSELS • The European Union's executive arm has officially rejected Italy's big-spending budget, clearing the path for unprecedented sanctions and deepening a bitter row with Rome's populist government.

"With what the Italian government has put on the table, we see a risk of the country sleepwalking into instability," European Commission vice-president Valdis Dombrovskis told a press conference in Brussels yesterday.

"We conclude that the opening of a debt-based excessive deficit procedure is... warranted," he added, referring to the EU's official process to punish member states for overspending.

The conclusion was not surprising, coming after Italy's 2019 budget was rejected last month, in a first for the EU. But Italy refused to back down after the Brussels veto, setting the stage for yesterday's final opinion at the commission.

The Italian budget is at fault for scrapping EU-pushed cost-cutting agreed by the previous government and instead promises a spending spree, including a basic monthly income for the unemployed and a pension boost.

The commission yesterday deplored "a marked backtracking" on past reforms, "in particular on pension reforms".

With its opinion, EU member states now have two weeks to decide whether to allow the commission to trigger the excessive deficit procedure, a months-long process that could lead to fines.

Once activated, the procedure allows Rome the opportunity to negotiate and correct its ways before Brussels can impose a sanction that can be as high as 0.2 per cent of Italy's gross domestic product (GDP).

Expectations are low that Italy's right-wing populist coalition will concede on the matter, at least until European elections next May, when Rome hopes to ride a wave of anti-EU sentiment.

The coalition government, made up of Deputy Prime Minister Matteo Salvini's League and anti-establishment Five Star Movement, insists the budget will help kick-start growth in the euro zone's third-largest economy and reduce debt.

"Has the EU letter arrived? I am also waiting for Santa Claus," said the far-right Mr Salvini, adding: "We will respond to the EU in an educated way."

In its budget, Italy intends to run a public deficit of 2.4 per cent of GDP next year - three times the target of the government's centre-left predecessor - and one of 2.1 per cent in 2020.

Brussels forecasts Italy's deficit will reach 2.9 per cent of GDP next year and hit 3.1 per cent in 2020 - breaching the EU's 3 per cent limit.


A version of this article appeared in the print edition of The Straits Times on November 22, 2018, with the headline 'EU exec arm rejects Italy budget, paves way for sanctions'. Print Edition | Subscribe