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Europe

EU rejects Italy’s draft budget in unprecedented rebuke

© Alessandro Bianchi, REUTERS | Italy's free-spending budget draft has put the country on a collission course with Brussels.

Video by Pierre BENAZET

Text by FRANCE 24

Latest update : 2018-10-23

The European Commission has rejected Italy's proposed 2019 budget over excessive spending and asked its government to come up with a new plan within three weeks, a first in European Union history.

The EU's executive branch confirmed the widely expected rejection on Tuesday, asking Italy's populist government to revise its budget so as to ensure it complies with EU deficit rules.

"Today, for the first time, the Commission is obliged to request a euro area country to revise its draft budget plan," Commission Vice-President Valdis Dombrovskis told a news conference.

"But we see no alternative than to request the Italian government to do so. We have adopted an opinion giving Italy a maximum of three weeks to provide a revised draft budgetary plan for 2019," Dombrovskis added, raising the prospect of disciplinary action if Rome fails to amend its spending plans.

'We see no alternative than to request the Italian authorities [revise their budget]'

Aimed at boosting economic growth and fulfilling generous electoral promises, the planned spending boost has been described by the Italian government as a "people's budget".

It includes a series of pension and tax changes costing 37 billion euros ($43 billion), of which 22 billion is to be paid for by borrowings, expanding the deficit.

The European Commission formally warned Italy last week that its plans for 2019 were a serious concern, sending a letter to Rome to warn that it did not rule out rejecting the entire budget.

But Italy's government ignored the threat, vowing on Monday to stick to its public spending hike while scrupulously keeping to its own deficit limits.

"The figure of 2.4% (deficit to GDP ratio in 2019) is a ceiling that we have solemnly undertaken to respect," Prime Minister Giuseppe Conte told journalists after his coalition government sent its pledge in a letter to EU officials in Brussels.

"It's possible that we don't reach it, but it's certain that we won't exceed it," Conte said of the self-imposed deficit limit.

‘No chance of Italexit’

A deficit of 2.4% of annual economic output next year would be triple the amount forecast by the previous Italian government. In turn, it would aggravate Italy's already huge debt mountain, at some 130% of gross domestic product (GDP), way above the EU's 60% ceiling and second only to Greece's in Europe.

Conte’s heterogeneous coalition government, an alliance between the anti-establishment Five-Star Movement (M5S) and anti-immigrant League, has pledged to reduce total debt to 126.5% by 2021.

"We are not hot-headed. If we had adopted a different budget we would have gone into recession," Conte said.

Despite the war of words with EU officials, the Italian premier vowed that his country would remain within the European Union and keep the euro currency.

"Read my lips: for Italy there is no chance of Italexit, to get out of Europe or the Eurozone," Conte said, amid growing concerns over Brexit negotiations and the prospect of Britain crashing out of the EU without an agreement.

Analysis: 'The Commission can't affort to back off, but neither can Italy'

Much of the recent invective between Rome and Brussels has involved Italy's Deputy Prime Minister Matteo Salvini, the powerful League leader.

Responding to the EU Commission's rebuke on Tuesday, Salvini insisted Italy would stick to its budget draft.

"This doesn't change anything, let the speculators be reassured, we're not going back," Salvini told reporters during a visit to Bucharest.

"They're not attacking a government but a people. These are things that will anger Italians even more and then people complain that the popularity of the European Union is at its lowest," he added.

(FRANCE 24 with AFP)

Date created : 2018-10-23

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