Euro, deeper integration at stake in Italy budget row - ministers

Euro gdp nordea

Euro gdp nordea

Euro zone finance ministers will discuss later on Monday the European Commission's unprecedented rejection of Italy's 2019 draft budget, although they will take no decisions.

If the report shows that Italy is failing to comply with rules on reducing its debt - which is more than twice the European Union limit - then that could trigger the so-called excessive deficit procedure, a process that could eventually lead to financial sanctions for the government in Rome.

EU Economic Commissioner Pierre Moscovici said the Commission would wait until Nov 13 before deciding on any disciplinary action against Italy over the budget, hoping Rome would change the higher borrowing assumptions.

In a joint statement, the bloc's ministers said they agreed with the assessment by the commission and called on Italy to engage in "open and constructive dialogue" and to co-operate closely with the commission "in the preparation of a revised budgetary plan which is in line with the stability and growth pact".

But Italian Finance Minister Giovanni Tria remained steadfast, promising an explanation of its plans to the commission but saying Rome would not abandon its spending boost, that he assured would deliver growth.

Eurozone finance ministers stood their ground against the Italian government tonight, as it urged policymakers in Rome to revise its draft budget to align with European rules.

The budget "is not changing", said Tria after the talks.

Italy faces a deadline of November 13 to submit a new budget.

No new budget would force the commission to put Italy into something called the "excess deficit procedure", a complicated process that could eventually lead to a fine of 0.2 percent of the country's GDP.

"On Nov. 19 we'll hold an extraordinary Eurogroup here in Brussels and this meeting will be mostly dedicated to euro-area reform", Eurogroup President Mario Centeno tells reporters after the meeting.

But this time, officials said it could instead act on its own economic forecasts, due on November 8, which are expected to show a far less optimistic scenario than the 1.5 percent GDP growth in 2019 predicted by the Italian government.

Italy already owes 2.3 trillion euros ($2.6 trillion), a sum equivalent to 131 percent of its GDP, and even if Brussels fails to punish Rome, many assume the markets will. "Never an Italy to its knees", he launched.

"I favour a policy that is growth-friendly in Italy".

The coalition's 2019 budget is based on the country experiencing an annual growth of 1.5 percent - a figure considered optimistic by the International Monetary Fund, which has forecast only one percent.

Moody's Investors Service last month downgraded Italy to just one level above junk, but the country managed to avoid a second rating downgrade as S&P Global Ratings decided only to lower its outlook on the nation's creditworthiness.

The much watched "spread" - the gap between German and Italian bond yields - has grown to around 300 basis points, up from around 130 in the first quarter of 2018.

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