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ROME—Italy’s government vowed to forge ahead with its spending plans Monday, despite warnings by the European Union that its proposed budget would breach the bloc’s fiscal rules, raising the chances of a clash with Brussels.
In a reply to a European Commission letter sent last week, Rome said it wouldn’t back down from its plans to run a budget deficit of 2.4% of gross domestic product—triple the level agreed by the previous government.
The move could lead the EU to reject the Italian coalition government’s budget and imposing fines on the country.
“The Italian government is conscious that it has chosen a budget policy approach which is not in line” with EU rules, Economy Minister Giovanni Tria wrote. “It was a tough but necessary decision in light of the persistent delay in recuperating the pre-crisis GDP levels.”
The Italian government’s decision is part of its aim to deliver on campaign promises made by the coalition partners, the populist 5 Star Movement and League parties. These include slashing taxes and increasing welfare spending to help the poor and unemployed. The measures are widely popular in Italy.
The partners came to power in June promising to fight the strictures of the eurozone’s rules that limit the ability of member countries to run wide deficits in case they undermine the economic stability of the common currency area.
The European Commission on Tuesday will discuss the Italian budget at a meeting of commissioners. The Commission is expected to take a decision during the meeting on whether to ask Rome to re-submit their budget, according to European officials. Formally, the EU’s executive has until Monday to decide.
In addressing the Commission’s criticisms, the government said Monday that its structural deficit will be widened only next year and that it commits to start reducing it from 2022. The structural measure strips out the effects of the economic cycle and one-off and exceptional fiscal measures.
The government considers it necessary to push for an acceleration of economic growth, Rome said. The measures it plans to implement, which will be partially funded by the wider deficit, will help economic growth and, in turn, reduce the country’s debt as a share of GDP, it wrote.
That was in response to a letter the European Commission letter sent to Rome on Thursday which described Italy’s draft budget as an unprecedented breach of EU rules. The letter asked for the reasons why Italy wanted to deviate from recommended fiscal policies.
This represented the first formal step of a procedure that could end in the rejection of Italy’s budget plan and imposition of fines on the country.
Economy minister Mr. Tria wrote Monday that if the budget deficit and debt doesn’t evolve as planned in the next years, the government pledges to intervene to ensure all targets are met.
Write to Giovanni Legorano at [email protected] and Laurence Norman at [email protected]
