ROME, Nov. 21 (Xinhua) -- Calling Italy's refusal to back down on its high-deficit budget plans "a particularly serious case of non-compliance", the European Commission on Wednesday started a process likely to result in significant sanctions against Italy.
For the second time in less than a month, the European Union's executive wing rejected Italy's plans for a budget that ran a deficit equivalent to 2.4 percent of the country's gross domestic product, three times larger than the commission called for earlier in the year.
On Oct. 22, commissioners gave Italy three weeks -- until Nov. 13 -- to submit a budget plan with smaller deficit. Just hours before that deadline, Italy resubmitted its budget plan with only minor changes. That set the table for Wednesday's developments.
Valdis Dombrovskis, the commission's vice-president for the euro currency and social dialogue, said he disagreed with claims from Italian leaders that the budget plan was necessary to help jump start Italy's sluggish economy.
"The impact of this budget on economic growth is likely to be negative," Dombrovskis said in a statement. "With what the Italian government has put on the table, we see a risk of the country sleepwalking into instability."
The 19 countries in the euro currency zone "are on the same team and should play by the same rules," Dombrovskis said.
Technically, the commission called for eurozone finance minister to launch an "Excessive Deficit Procedure" against Italy. That would require the country to produce a strategy and time table for "corrective action" or risk massive fines.
By law, fines could total as much as 0.2 percent of the country's gross domestic product in the first year -- around 4.4 billion euros (4.9 billion U.S. dollars) based on current estimates for the size of the Italian economy.
"Sanctions are very likely, but the big risk for Italy isn't the money they could be forced to pay but rather the future credibility of the Italian government," Valentina Meliciani, an economist with Rome's LUISS University, told Xinhua.
That credibility is already taking a beating. Due in part to political instability, the yield on Italian government bonds has climbed precipitously in recent months. On Wednesday, yields for Italy's benchmark ten-year bonds touched 3.7 percent, their highest levels in nearly five years.
Yields climb due to perceived risks associated with the government's ability to pay off mature bonds. Higher yields increase the government's costs for borrowing money, but they also have the knock-on effect of making private banks more cautious in lending money and raising interest rates for private companies seeking loans.
If companies cannot secure loans or if they cannot afford to repay loans they already have, that will act as a significant drag on economic growth.
"The government is saying the high deficit level is needed to enhance growth, but it could actually have the opposite effect," Salvatore De Fiore, an economic analyst with banker Unicredit, said in an interview.
For its part, Italy says it has no plans to change tack.
"We are very sure about the numbers in our budget," Deputy Prime Minister Matteo Salvini told reporters Wednesday. "For us, the discussion is finished. We will talk about it again in a year."
Salvini went on to say any fines against Italy would be "disrespectful."
According to Meliciani, the LUISS economist, Salvini and other government leaders have made a calculation that backing down to European Commissioners would cause them more problems than whatever fines would eventually be levied.
"Elections for the European Parliament are only six months away," Meliciani said. "Government leaders would risk losing a lot of support by compromising. The problem is, leaders from other countries fear they could face criticism if they allow Italy to flaunt the rules."
