The dispute between the EU Commission and Italy's populist government is entering the next round. The Brussels authorities will have to reject the draft budget for the coming year as things stand, said EU Budget Commissioner Günther Oettinger (CDU) the SPIEGEL.
"It has been confirmed that Italy's budget for 2019 is not compatible with the commitments that exist in the EU," Oettinger said. Economic and Financial Commissioner Pierre Moscovici is scheduled to hold talks in Rome this week. Within two weeks, the Commission will send a formal letter with its assessment to the Italian Government. She had submitted the draft budget at the last minute on Tuesday night.
Italy's coalition of a right-wing nationalist and left-wing populist five-star movement plans to increase the country's deficit to 2.4 percent of annual economic output next year to finance its expensive campaign pledges. This is three times more than the 0.8 percent that the Italian previous government had agreed with the European Commission. And it could become even more, as the 2.4% forecast is based on the Italian government's highly optimistic assumptions about economic growth.
Although Italy's government is still below the Maastricht limit of three percent with its new debt plans. However, according to the EU rules, Italy must also reduce its total debt. This may actually amount to only 60 percent of annual economic output, but is already fully 70 percentage points above. Italy's debt ratio of 130 percent of gross domestic product is surpassed only by Greece in the eurozone.
In other EU countries and on the financial markets, Italy's policy raises concerns. The risk premiums for Italian government bonds are rising. For a ten-year bond, the government currently has to offer around 3.5 percent interest. By comparison, in Germany it is only about 0.5 percent. October 26 is eagerly awaited: On this day, the two major rating agencies Moody's and Standard & Poor's are expected to be above Italy's credit rating.
Editor's note: In an earlier version of this article, the European Commission rejected Italy's budget. This is not correct. A final decision on the rejection of the Italian draft budget has not yet been made, according to the Commission. A letter from the EU Commission with a rejection will not, as previously reported, arrive on Thursday or Friday in Rome, but only after final talks between Commissioner Moscovici and the Italian government.