BRUSSELS, Nov. 16 (Xinhua) -- As the European Commission contemplates disciplinary actions against Rome, the ongoing row over Italy's 2019 budget is set to escalate with potential fines for the eurozone's third-largest economy.
European Commission Vice President Valdis Dombrovskis has claimed the Italian government is openly challenging the European Union (EU) in an ongoing budget row that could lead to Rome being slapped with sanctions over public debt and spending.
In an interview with Italian daily newspaper Il Sole 24 Ore, Dombrovskis, who oversees financial stability, indicated Friday that opening what is called an Excessive Deficit Procedure (EDP) "would be justified" if Italy did not lower deficit targets and move to reduce public debt.
Italian Interior Minister and leader of the populist League party Matteo Salvini told Italian daily newspapers on Friday that Italy would not accept sanctions. "They want to penalize us, but this will end up being more damaging to the EU than to us."
NECESSARY STIMULUS OR PRECARIOUSNESS?
The row began when the Italian government, a coalition of conservative and populist parties that formed in May, submitted a budget that was intended to deliver on campaign promises to create a universal income and to increase public spending in order to jumpstart the economy. The result was a budget deficit target of 2.4 percent of GDP.
In a first for Europe, the European Commission rejected Italy's draft budget on Oct. 23, giving it a "negative opinion" due to Commission forecasts of budget deficit reaching 2.9 percent of GDP in 2018, and public debt remaining stable at 131 percent of GDP.
According to eurozone rules, member states must budget deficit of less than 3 percent of GDP, and public debt under 60 percent of GDP.
At the heart of the debate is Rome's instance on budget plans for economic stimulus, which Brussels sees as economic precariousness.
RISKY GAME
In his Nov. 13 letter to the European Commission, Italian Economy and Finance Minister Giovanni Tria said that Rome intended to maintain its 2.4 percent budget deficit target, but introduce "safety clauses" in order to avoid overshooting. He indicated the Italian government also intended to sell state-owned real estate worth 1 percent of GDP to raise money, but that key spending programs would be maintained.
In the aftermath of the letter, the European and international press interpreted Rome's position as being one of defiance, with many observers and analysts arguing that the confrontation with Brussels would only help Italy's populist leaders in advance of the 2019 European elections.
It's a risky game not only on politics. Should the EU's EDP be opened next week as reported, Italy could potentially face sanctions including fines reaching up to 0.2 percent of GDP. Regional subsidies from the EU's "cohesion fund" could also be withheld.
Once the European Commission has published its report on Italian finances Wednesday to launch the disciplinary procedures, the eurozone Economic and Financial Committee will have two weeks to review it. It is then likely that euro zone finance ministers will declare Italy in excessive deficit in a meeting on Jan. 21-22 before giving Rome between three and six months to take action to remedy the situation.
After this period, the Commission would then have 20 days to request that Italy place a non-interest-bearing deposit of 0.2 percent of GDP from the preceding year, though, rules allow the Commission to recommend reduced amounts or to cancel the deposit altogether.
