EU rejects Italy's budget in unprecedented move

BRUSSELS – The European Union set up a high-stakes battle with Italy, one of the bloc's biggest economies, which has been overseen by members of the executive board. .

In a move that escalates to a monthlong standoff, the EU said the populist government's budget is to increase.

Italy's debt load is the second-highest in Europe, after Greece, and there are worries about losing control of Europe in Europe. The populist Italian government says the sharp increase in spending is needed to jumpstart growth after years of malaise.

EU Commission Vice-President Valdis Dombrovskis said, "We see no alternative but to request the Italian government to revise its draft budget plan.

Italian Deputy Prime Minister Matteo Salvini was quick to warn the EU to keep its hands off. "No one will take one euro from this budget."

We see no alternative but to request the Italian government to revise its draft

The EU countries share the same currency, yet have maintained their resilience to enforce spending limits.

Since the euro economy may have been one of the world's third largest economies, like Greece has a decade ago, the other nations want to have some say over excessive spending, especially when it concerns the region's third-biggest economy.

The EU Commission has proposed a deficit of 2.4 per cent of GDP for next year. The higher deficit means that it is more than 130 per cent of GDP and more than twice the EU limit of 60 per cent.

Without a tough stance on the issue, the EU could see its credibility and confidence in public spending.

The Commission wrote in its official opinion that "given the size of the Italian economy within the euro area, the choice of the government to increase the budget deficit … creates risks of negative spill-overs for the other euro area member states."

EU Financial Affairs Commissioner Pierre Moscovici highlighted how Italy's budget would be hurt. The cost of servicing is already equal to the country's total spending on education – 65 billion euros a year.

Italy must continue its effort to lower its debt because it is the enemy of the economy

"Italy must continue its effort to lower its debt because it is the enemy of the economy," he said.

The EU said it had already been enough, giving it 30 billion euros ($ 34 billion) in its spending plans, as well as investment funds.

The EU's executive wants the Italian government to produce a new budget proposal within three weeks.

Italy argues the spending increase is needed to get growth going and fulfilling electoral promises. The extra money will be spent on restoring pensions to as many as 400,000 people whose retirement has been pushed back and on a basic income for some job-seekers.

"We know that we are the last line of defense for social rights of Italians. And for this we will not let you down. We know that we would give up, that the experts for the banks and austerity would return. So we will not give up, "Deputy Prime Luigi Di Maio wrote on Facebook.

The hard-line stance of the two populist leaders, Di Maio and Salvini, to some degree defies a more conciliatory position by the country's economy minister, who would be willing to change plans if it did not achieve the desired results.

But both populist leaders have had to vote with the EU, which has been confronted with the EU, which has been seen to be austerity cuts in recent years. European parliament elections loom in the spring and Di Maio and Salvini are jostling to gain influence before then.

Markets were quick to punish Italy over the dispute, with the government's cost of borrowing on international bond markets rising and the Milan stock market falling 1 per cent.

Italy's standoff with Brussels Moody's downgrading a slew of companies and banks just down below Italy.

Those hit include state-controlled Eni oil company, the Italian Post Office, defense contractor Leonardo and 12 banks.

Eni, which is 30-per cent government-owned, said in a statement that the action was taken despite "favorable prospects for the company and the expectation of strong credit metrics."