Italy expects budget to face EU rejection Tuesday

Matteo Salvini stands next to a sniper rifle during an event involving the state police SWAT team in Rome

Matteo Salvini stands next to a sniper rifle during an event involving the state police SWAT team in Rome Credit Remo Casilli REUTERS

The populist government of italy has pledged on Saturday to explain his budget 2019 strongly criticized in Brussels, while repeating his commitment to keep the country in the euro zone, during a press conference following a council of ministers.

'We have no understanding whatsoever for Italy's draft budget plan'. It marks the start of a process which could culminate in a decision by the Commission to issue a negative opinion next week - essentially rejecting Italy's budget - and asking the Italian government to send it back with revisions.

The EU presidency says it "is really, really decisive" for Italy to change its draft budget because otherwise Italy would not only threaten its own financial health for also that of its eurozone partners.

German chancellor Angela Merkel told reporters after the meeting that Conte briefed her on reforms, from the fight against corruption to the transparent digital structure of public administration, but that on the budget, Italy needs to engage in a "positive dialogue" with the European Union commission. Moreover, the letter also spoke about the budget deficit which, on the basis of the Italian budget plan, would increase to about 0.8% of the country's 2019 GDP even as the European Union has allocated the country's potential budget deficit to only about 0.6% of its 2019 GDP.

Mr Di Maio said Italy had a chance to prove public debt could be reduced by "investing in social rights" and trigger important changes across Europe.

The cabinet meeting was called in part because Di Maio had claimed that unauthorized changes were made to the draft budget, involving a proposal to extend a tax amnesty on money held overseas and brought back to Italy. The increase suggests investors are more nervousness about the impending budget showdown with the EU.

Kurz said: "If one breaks these rules then this means that Italy is endangering itself but of course also is endangering others beyond that".

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

"We [the commission] were very kind, gentle, and positive, when it came to Italy, because Italy is Italy", Juncker said, adding that in the last three years Rome was able to €30bn more without sanctions by the EU's stability rules.

"A harsh rebuke and the threat of further measures would likely boost the popularity of the populist coalition government", giving Italy's governing parties "an invaluable narrative to use during the campaign for the European elections in May", Piccoli said.

While 5-Star has opposed tax amnesties in the past, the right-wing League, with its traditional voter-base of self-employed businessmen, has pushed for the measure, arguing it could raise billions of euros for the cash-strapped treasury.

Markets reacted to Italy's plans by pushing up borrowing costs Friday to the highest levels in five years.

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