BRUSSELS (Reuters) - A row between the eurosceptic Italian government and the European Union over Italy’s 2019 budget has escalated with the EU Commission’s decision on Oct. 23 to reject Italian budgetary plans for next year.
The unprecedented move has formally opened a legal dispute that is likely to increase market pressure on Italy until it is resolved.
The procedure has been part of the European Commission’s toolbox to ensure euro zone countries’ compliance with EU fiscal rules since 2013, but had not previously been applied to any member of the 19-country currency bloc.
Under EU rules, countries’ draft budgets should be consistent with economic recommendations agreed earlier with the Commission and euro zone peers.
In May, Italy committed to cutting its structural deficit by 0.6 points in 2019. But the government’s new plans foresee instead a rise in the structural deficit of 0.8 percent of GDP. The structural balance excludes one-off expenditures, for emergencies or natural catastrophes.
A structural deterioration is likely to increase Italy’s huge debt of more than 130 percent of GDP, which should instead fall, under EU rules.
Below are the key dates and deadlines of the procedure and of relevant EU meetings:
Nov. 5: The Eurogroup of euro zone finance ministers holds a monthly meeting which is likely to put further pressure on Rome to change its draft budget.
Nov. 8: The Commission publishes its economic forecasts, which would show whether EU calculations match Italy’s growth, debt and deficit projections underpinning its budget targets. The data could pave the way to sanction procedures if EU and Italian data differ widely.
Nov. 13: Italy has three weeks from the date of the EU decision to submit a revised budget. That sets a Nov. 13 deadline.
Dec. 3: Monthly Eurogroup meeting.
Dec. 4: The Commission would have three weeks from the submission of Italy’s amended budget to adopt a new opinion in which it would describe Italy’s overall budgetary position and its impact on the whole euro zone. This deadline would expire on Dec. 4 if Italy revised its budget on the last available day allowed by the procedure.
Dec. 13: The European Central Bank’s Governing Council holds a monetary policy meeting that is set to wrap up its bond purchase program, a widely expected move that could, however, further increase Italy’s spiraling debt servicing costs.
Dec. 14: EU leaders at their regular end-of-year summit would likely discuss Italy’s budgetary plans if no solution was found at this stage, further increasing market and peer pressure on Rome.
Feb. 4-7: This is the week when the Commission publishes its new economic forecasts.
If Italy refused to change its draft budget, the Commission could open an excessive deficit procedure against Rome, which would likely push Italy again into the market spotlight, and could also trigger fines.
Sanctions procedures are usually started by the Commission when final data are available over a two-year period, which would mean that this decision would come in April 2019, just a few weeks before the May’s European Parliament elections.
EU officials have, however, said that they are not legally bound to start such a procedure in April and could do it earlier, if needed.
In addition to this, under EU rules the Commission can send an “early warning” letter anytime to states that show a significant deviation from their targets.
These letters have usually been sent after the publication of EU’s quarterly economic forecasts. The warnings, if unheeded, could also trigger financial sanctions.
Reporting by Francesco Guarascio; Editing by Toby Chopra and Robin Pomeroy