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European Commission rejects Italy’s draft budget

Tuesday, 23 October, 2018 - 18:59

The European Commission on Tuesday decided to reject Italy’s budget after denouncing an “unprecedented” fiscal slippage and pointing to a risk of “serious non-compliance” with European rules. A first in the history of the European Union.

The ruling populist coalition in Italy had itself acknowledged that the draft budget was “not in line with the standards of the Stability and Growth Pact”. The Italian budget forecasts a deficit of 2.4% of GDP in 2019, compared with 0.8% for the previous government, then 2.1% in 2020 and 1.8% in 2021. However, in a pledge of goodwill, Rome has promised to lower Italy’s public debt, from 131% of GDP, to 126.5% in 2021.

But this commitment failed to satisfy Brussels. At a press conference on Tuesday afternoon in Strasbourg, Valdis Dombrovskis, vice-president of the European Commission said that The Italian government is openly and consciously going against commitments made.”

“This is an unprecedented situation, and the decision should not be surprising to anyone as the Italian government’s draft budget represents a clear and intentional deviation from the commitments made by Italy last July,” added the European Commissioner for Economic Affairs, Pierre Moscovici, at the press conference.

According to European rules, Italy now has three weeks to submit a revised budget. Otherwise, it could be the subject of an “excessive deficit procedure,” which could lead to financial penalties corresponding, in theory, to 0.2% of its GDP (or 3.4 billion euros according to 2017 figures).

“Tomorrow, we will continue to explain this finance law,” said Deputy Prime Minister Luigi Di Maio before the Commission’s announcement. “The coming weeks will be weeks of great dialogue with Europe and the markets,” the leader of the populist 5 Star Movement said. Despite the growing tension between Rome and Brussels,  the Italian government on Monday reaffirmed its commitment to the EU and the euro area, ensuring that there was “no chance” of Italy leaving the bloc.


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