EC Rejects Italy’s Draft Budget in Unprecedented Move in EU History

EC Rejects Italy’s Draft Budget in Unprecedented Move in EU History

While unprecedented, the Commission’s decision is expected because of the numerous warning from Brussels.

The European Commission, the EU executive, has turned down Italy’s proposed budget for 2019 because of excessive spending, a step undertaken for the first time in the history of the European Union.

Italy’s Cabinet made of leftist and far-right populists (the Five Star Movement and the League) declared with much fanfare in September that it was ending austerity with its first draft state budget.

The populists projected annual budget deficit of 2.4% for 2019 – 2021, up from 0.8% planned by Italy’s previous center-left Cabinet, seemingly in order to fulfill their lavish election promises, and potentially to fuel economic growth.

Italy has the second biggest government debt (as a percentage of the GDP) in the Eurozone after Greece, presently standing at 131%.

The constant warnings of the EU institutions had made the rejection of Italy’s 2019 draft budget largely expected.

Thus, on Tuesday, the European Commission asked the Italian government to revise it in order to comply with EU deficit rules.

“Today, for the first time, the Commission is obliged to request a euro area country to revise its draft budget plan,” EC Vice President Valdis Dombrovskis told a news conference, as cited by AFP and France24.

“But we see no alternative than to request the Italian government to do so. We have adopted an opinion giving Italy a maximum of three weeks to provide a revised draft budgetary plan for 2019,” he added.

Should it fail to revise its draft budget for 2019, the Italian government faces the prospect of disciplinary action.

The unprecedented formal rejection by the EC of a member state’s draft budget comes after last week the Commission sent Rome a letter with a formal warning.

Despite the warning, however, on Monday, Italy’s government defied the warning saying it was going to go ahead with an increase in public spending.

“The figure of 2.4% is a ceiling that we have solemnly undertaken to respect,” Prime Minister Giuseppe Conte told journalists after submitting to Brussels a pledge not to go over the self-imposed deficit limit.

“It’s possible that we don’t reach it, but it’s certain that we won’t exceed it,” Conte promised.

His Cabinet has pledged to reduce Italy’s total debt to 126.5% by 2021. The EU’s recommended debt ceiling is 60% of the GDP.

“We are not hot-headed. If we had adopted a different budget we would have gone into recession,” Conte said.

At the same time, the Italian Prime Minister vowed Italy would remain in the EU and the Eurozone.

“Read my lips: for Italy there is no chance of Italexit, to get out of Europe or the Eurozone,” Conte stated.

(Banner image: Valdis Dombrovskis on Twitter)

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