Italy risks paying price for breaking fiscal rules

Italy risks paying price for breaking fiscal rules

Italy last week ignored criticism from Brussels over its controversial budget plan.

The government has said it meant to plough ahead with its budget regardless.

The government has until midday Monday to respond to European Union concerns.

Italy, the euro zone's third largest economy, has prepared an expansionary 2019 budget that sets up a showdown with authorities in Brussels over compliance with European Union rules.

Late Thursday, the European Commission formally warned Italy that its budget 2019 plans were a serious concern, calling for "clarifications" by Monday noon.

However on Friday, the news on financial markets spelled trouble for Italy: the spread between Italy's benchmark 10-year government bonds and their German counterparts - a key measure of investor confidence in the country - jumped to 340 basis points in morning trading before ending the day at 301 points.

At the summit, Austrian Chancellor Sebastian Kurz said fiscal rules should be respected by all, adding: "Too much debt is unsafe".

Bonds plunged Thursday as the European Union's executive body dispatched a letter to the Italian government requesting changes to its draft budget plan by October 22.

"I cannot imagine the euro without Italy and Italy without the euro, " Moscovici said after his meeting with Tria during which he delivered the letter.

Tria for his part said Italy and Brussels had "different evaluations" of the situation, but added that he too looked forward to "a constructive dialogue".

And Moody's said "stalling of plans for structural economic and fiscal reforms" also had negative implications for the country's growth outlook and debt.

Italy's budget proposal is considered out of line with commitments made earlier, with a proposed deficit of 2.4 per cent.

Luigi Di Maio, the head of the 5-Star Movement, on Thursday threatened to lodge a formal criminal complaint.

Conte added that "we knew that these measures devised to satisfy the needs of Italian citizens, long unanswered, are not in line with the expectations of the European Commission", and that the Italian government was prepared to respond to comments. He told a late-night talk show that the draft budget presented to President Sergio Mattarella's office contained a proposal to extend a tax amnesty on money held overseas and brought back to Italy.

"I am beginning to get cross because at that cabinet meeting, Conte read (the text) and Di Maio wrote (the minutes)", Salvini said.

But Salvini, who is also leader of the right-wing League party, said the decree containing the proposal had to stay as it was if they did not want to create a unsafe precedent.

The leaders of Italy's ruling coalition parties accused each other on Friday of misleading voters over a disputed tax amnesty in their most acrimonious falling-out since they formed a government in June.

He said the 5-Star, founded by comedian Beppe Grillo, was working to present in January-February a programme that brought together similar grassroots movements from other European countries with the goal to "give back a heart and humanity to European institutions".

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