EU moves to discipline Italy over budget, Rome remains defiant

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BRUSSELS / ROME (Reuters) – The European Commission took the first step on Wednesday to disciplining Italy over its expansionary 2019 budget after Rome refused to change it, raising the stakes in a dispute that has alarmed the whole euro zone and could eventually lead to fines .

The Commission said the Italian draft increased the 2019 structural deficit, which excludes one-offs and business cycle swings, by 1.0% of gross domestic product rather than

Italy also would not trim its huge debt in "a serious case of non-compliance" with the rules, the war said.

Italy's debt, at 131 percent of GDP, is proportionally the second highest in the euro zone after Greece's. 60%, but the Commission said it would be stable for the next two years.

"The opening of a debt-based excessive deficit procedure is thus warranted," Commission Vice President Valdis Dombrovskis told a news conference. Italy is essentially planning significant additional borrowing, instead of the necessary fiscal prudence. "

Italy believes its borrow-and-spend policy – which the country's debt ratio, while reducing unemployment, which was at 10.1 percent in September.

Italian Prime Minister Giuseppe Conte, scheduled to meet Commission President Jean-Claude Juncker on Saturday, said on Wednesday.

Economy Minister Giovanni Tria and Deputy Prime Minister Luigi Di Maio also made some conciliatory remarks that Rome and the EU had the same objectives and would seek a shared solution.

"We want the same thing: to reduce the debt," Di Maio said on Facebook. Tria said Italy believed the "moderately expansionary" budget was needed to counter a slowdown in the economy and that it would "continue with the Commission to seek a shared solution in our mutual interests".

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Euro zone finance ministers, Mario Centeno, speaking in The Hague, reiterated that euro zone supported the commission and would discuss Italy's controversial draft budget at its next meeting in December.

2019 DRAFT BAD FOR ITALY

The Commission believes Italy's 2019 budget will not boost growth as expected by the eurosceptic government in Rome.

"The impact of this budget on growth is likely to be negative in our view. It does not contain significant measures to boost potential growth, possibly the opposite, "Dombrovskis said. "With what the Italian government has put on the table, we see a risk of the country sleepwalking into instability."

In Rome, the government of the right-wing League and the anti-establishment 5-Star Movement remained defiant.

"We are convinced about the numbers in our budget. We will talk about it in a year's time, "Deputy Prime Minister and League leader Matteo Salvini told reporters. Fines against Italy would be "disrespectful", he added.

Before any financial sanctions, the Commission needs to be backed for its view from the EU's deputy finance ministers in the next two weeks, and then from the finance ministers.

This is highly likely, given the joint statement of the euro zone finance ministers that was backed up by the commission against Italy earlier in November.

In December, the Commission will prepare recommendations for Italy to cut the debt and to be deadline to take action in January.

Only if Italy then fails to comply

Italy's borrow-and-spend plans for the benchmark 10-year bonds, and their spread over

European Union and Italian flags are seen in downtown Rome, Italy, October 19, 2018. REUTERS / Alessandro Bianchi

23rd December 2008, the two sides of the two sides of the two sides of the two sides of the European Union.

Dombrovskis said the higher borrowing costs were already hurting the economy.

"The uncertainty and rising interest rates are taking their toll on the Italian economy. Also it hinders the ability of Italian banks to affordable companies, "he said.

Reporting by Jan Strupczewski and Gavin Jones; Additional reporting by Bart Meijer in The Hague; Editing by Mark Heinrich and Hugh Lawson

Our Standards:The Thomson Reuters Trust Principles.

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