Italy defended its controversial debt-laden budget proposal on Monday, setting the government on a direct collision course with the EU.
Italy's Italy's Economic Minister Giovanni Tria told the European Commision via letter that it would remain defiant of its contested budget despite the Commission's concerns that it breaches of EU fiscal rules. Tria noted that the budget proposal was not in line with the EU Stability and Growth Pact, with the government widening the target of next year's deficit to 2.4% GDP.
Although the proposed budget would set next year's budget deficit below the 3% EU Deficit Limit, the figure is pushing Italy further from a balanced budget and well below last year's targeted 1.8%. Tria called the budget a "hard but necessary decision" and attributed it to Italy's economic underperformance and "delay in catching up to pre-crisis levels of GDP and the desperate economic conditions in which the most disadvantaged citizens find themselves in".
The letter noted that the government would intervene if it failed to meet deficit goals. "The government trusts that what it has explained is sufficient to clear up the setup of its budget and that the (fiscal) law will not put at risk the financial stability of Italy or other EU state members," he added.
The letter comes as a direct response to a letter sent by European Commissioner for Economic and Financial Affairs, Pierre Moscovici, and Vice President of the European Commission, Valdis Dombrovskis, on October 18 warned that the budget posed as a "source of serious concern for the European Commission". The letter noted that the macroeconomic forecasts outlined in the budget proposal were not "endorsed by the Parliamentary Budget Office (PBO), Italy's independent fiscal monitoring institution".
Outlining factors of concern, the letter concluded that the budget proposal points to a “particularly serious non-compliance with the budgetary policy obligations laid down in the Stability and Growth Pact".
At a separate press conference on Monday, Italian Prime Minister Giuseppe Conte also took aim at the critical Commission letter, saying that prejudgement is "not acceptable".
"I say that this is a prejudgement and it is unacceptable coming from someone who represents an institution with its rules and regulations," he added. Conte stated that Italy does not intend on leaving the currency, he said: "Read my lips. There is no way Italy will leave the euro."
But added that the EU was damaging itself by not meeting the needs of ordinary people.
Earlier this month, the government sold bonds at a yield of 2.51% marking its highest borrowing rate in over 5 years, raising €6.5 billion. Reacting to this, Commission President Jean-Claude Juncker said: “I would not wish that, after having really been able to cope with the Greek crisis, we’ll end up in the same crisis in Italy.”
Italy debt is the second highest in the Eurozone, following Greece. On Friday, the rating agency Moody's slashed the nation's sovereign debt rating to one notch above junk status to Baa3.
The Commission is set to meet on Tuesday in Brussels to discuss its response, but it is unclear when it would take a decision.