Published: Wed, November 14, 2018
Markets | By Otis Pena

Italy Looks Set To Defy EU On Contested Budget Amid Midnight Deadline

Italy Looks Set To Defy EU On Contested Budget Amid Midnight Deadline

Deputy Premier Luigi Di Maio told reporters in Rome that the government was not changing the ambitious social spending plans in its draft budget because "it is our conviction that this maneuver is what the country needs to relaunch". In a sign that Rome has no intention of turning back on plans to run at a deficit of 2.4 percent of gross domestic product in 2019, Mr Di Maio warned Brussels its demands would sink his country into financial ruins.

In a statement, he said the government would stick to the budget's main parameters.

His colleague Matteo Salvini said Italy does not intend to "touch one iota" of its spending plans and will say "no" to "threats and European Union commissioners".

She says, "I have worked for more than 40 years".

Italian newspaper La Repubblica reported that Italy could now revise its GDP growth forecast for next year to one per cent, citing a Government source, while another newspaper Il Messaggero said it would be cut to 1.2 per cent.

The big problem is Italy's public debt, now a huge 2.3 trillion euros ($2.6 trillion), or 131 percent of Italy's GDP - way above the 60 percent European Union ceiling.

Public debt stands at more than 130% of GDP, the second-highest ratio in the eurozone after Greece.

A report showing Italy is in breach of the EU's debt rules would be another step down the path toward potential financial penalties.

Prime Minister Giuseppe Conte has attempted to soothe troubled markets by saying the Commission's forecasts "undervalue the positive impact of the budget and structural reforms".

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Brussels has called on Rome to change the project but the populist coalition did nothing wanted to know, and has refused so far to bend.

The Commission last month rejected Italy's plan for a big increase in the deficit and described its growth forecast for 2019 as overly optimistic.

If Italy's budget is rejected again, the Commission can initiate legal action under an excessive deficit procedure. This could happen as early as November 21, but there is time to do it until December 6.

Over the short-term, expect the European Commission to begin proceedings to sanction Rome-likely via a multi-billion dollar fine.

"But Italy also adopted the many rules that we now all have in common", she added.

He said: "The Italians are moving away not just from what they have promised us but also away from the minimum requirements of the stability pact".

The ball will then return in the commission's court.

In a blistering critique of the performance of the third largest economy in the eurozone, the International Monetary Fund noted that real incomes are at the levels of two decades ago, unemployment has been stuck at 10 per cent for the same period and emigration is near a five-year high.

"The strong market reactions to political events in the past have sparked new concerns about the links between banks and sovereign debt in some parts of Europe - this is the basis of the request for fiscal discipline and compliance with the rules", he said.

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