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AFP
Prime Minister Giuseppe Conte (left) and his two deputies – Luigi Di Maio and Matteo Salvini (right) have been invited to revise their budget
The European Commission has asked Italy to revise its budget, an unprecedented step towards an EU member state.
The ruling populist parties in Italy have promised to keep their election promises, including a minimum income for the unemployed. But it has the second highest national debt in the euro zone.
The Commission stated that their recommendations constituted "particularly serious non-compliance".
Italy now has three weeks to submit a new draft budget in Brussels.
Valdis Dombrovskis, Vice President of the Commission for the Euro, said Italy's response to the Commission's concerns was "not enough" to ease fears and that the rules of the euro were the same for everyone.
"For the first time, the Commission is obliged to ask a euro area country to revise its draft budget plan, but we do not see any alternative to asking the Italian authorities to do so."
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A provocative Prime Minister, Giuseppe Conte, had already insisted that the budget deficit would not exceed 2.4% of the country's GDP, although it is three times higher than the previous government's goal .
The government claims that servicing its debt representing 131% of domestic production – just behind Greece's bailout – would hurt the Italians, who have not yet recovered from the decade-long financial crisis.
The Italian economy is still smaller than it was in 2008, and the ruling parties, the League and the Five Stars, believe that an increase in spending will boost growth.
How did the drama unfold?
The government released its first budget in late September, promising to "end poverty" with a minimum income for the unemployed.
Other measures being considered include the reduction of taxes and the elimination of the extension of retirement age, which made it possible to deliver several key campaign promises during the March elections.
Italian Finance Minister Giovanni Tria and international observers had hoped that his deficit would remain below the 2% mark, perhaps as low as 1.6%.
But the new political leaders of the country have decided to increase it to 2.4% to finance their projects.
This would not normally be a problem, as it is well below the 3% deficit provided for by the Eurozone rules – with the exception that Italy is highly indebted.
With 131% of the country's economic output, it is the second highest figure in the eurozone, behind Greece, which has experienced severe financial difficulties over the past decade.
And as the third largest economy in the eurozone, Italy's debt problems are worrying Commission officials.
Pierre Moscovici, European Commissioner in charge of economic affairs, said at the end of September that every euro spent on servicing such a large debt equals "one euro less on the roads, one euro less for the first time". education and one euro less for social justice ".
"Spending one's time out of economic problems ends up hurting those who do it," he said. "And it's always the people who pay the price in the end."
After Italy announced its budget proposal, weeks of turbulence followed.
Before the Commission announced Tuesday the rejection of the Italian budget, European equities fell to their lowest level in almost two years.
As a result of the announcement, the 10-year bond yield gap between Italy and Germany, widely used as a relative measure of Italy's position on the markets, has expanded to reach a new high at 314 points.
