Italy set to defy EU and stick to budget proposal

The EU's European Economic Affairs Commissioner, Pierre Moscovici, on Monday again reminded Italy that its structural deficit is "way too high."

He told the France Inter radio station that he does not want a "crisis with Italy" over its planned deficit-raising budget and still hoped for "constructive dialogue."

Italy has until midday on Monday to reply to a formal letter from Brussels warning Rome against an "unprecedented" deviation from eurozone budget rules.

Italian Deputy Prime Minister Luigi Di Maio told RTL radio that his government is ready to "sit at the table" to discuss the proposals and that he would send a letter to the European Commission explaining the reasons behind its 2019 budget. Di Maio also said he expected the EU executive to move "very fast" to the next stage of confrontation but also said he still hoped a compromise could be reached.

What are Italy's budget plans?

The Italian government intends to raise next year's deficit target to 2.4 percent, up from the 0.8 percent set by a previous government and the 1.8 percent forecast for this year. The Italian government plans to raise public borrowing to finance the tax, welfare and pension giveaways its ruling parties pledged in their election campaigns.

How do Italians view the plans?

An opinion poll released by Ipsos on Sunday revealed strong support for the proposed budget. Some 59 percent of respondents backed the plans. A majority also said higher government debt was necessary to help stimulate the economy.

Why are the proposals controversial?

Although the planned deficit is below the EU's 3 percent limit, it exceeds the 1.8 percent targeted for this year. The European Commission wrote to the Italian government to warn that the difference between the expected budget deficit and the one now foreseen for 2019 was "unprecedented in the history" of EU budget rules.

Read more: Italian deputy minister: 'Italy not eurozone's next Greece'

Why is the European Commission worried?

The EU fears the plans mean that Italy is unwilling to steadily reduce its sky-high debt. Italy already has one of the highest levels of debt in the world, equal to more than 130 percent of gross domestic product (GDP). Moody's credit ratings agency downgraded Italy's credit worthiness to Baa3 — one notch above junk status.

What can the Commission do?

Since 2013, the EU body has had the power to dismiss budget proposals and ask member states to rework them, a power that has not yet been used. It could start infringement procedures if Italy does not comply.

ng/rt (dpa, Reuters)

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