Rome vs Brussels: risk of an unprecedented clash over the budget

Rome vs Brussels: risk of an unprecedented clash over the budget
By Elena Cavallone
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On Wednesday the European Commission might decide to take first steps on the opening of a procedure for excessive debt against Italy

Rome vs Brussels: the verdict on the 21st


In a few hours, Rome could see an unprecedented clash with Brussels over its high spending budget plan.

On Wednesday the European Commission is going to present its opinion on the draft budget presented by all member states. All eyes will be on Italy, as it is very likely that the executive body of the EU will give a negative opinion on the plan submitted by the government, that sets a budget deficit at 2.4%, well beyond the recommendation of the Commission.

But that's not all. It is very likely that the European Commission will publish a report on Italian debt. This report is crucial because it is a necessary step to allow the Commission to propose to member states to open the procedure against Italy for excessive debt.

EU governments will have two weeks time to give their own assessment to this report and decide whether or not to support this procedure.

"It is difficult as now to say when this assessment will be: the earlier day possible is the third of December or in January", Beda Romano correspondent for the economic newspaper Il sole 24 ore, explains. "Italy is isolated on this issue, some countries are more vocal than others (like Austria and The Netherlands) others are more cautious, but the meetings of finance ministers that have taken place over the last few weeks have shown that there is broad support for the Commission's way of dealing with this issue and clearly isolation of Italy, compared to other member states”.

The procedure for excessive debt

This procedure has never been applied so far: it would force Italy to clean up its finances, by introducing specific measures to reduce public debt in a specific period of time.

"So far a number of countries have been subjected to the procedure for the excessive deficit, but a procedure for excessive debt has never been opened before. We are in unchartered territory because we don't have a precedent, we don't have examples in the past and the treaties give discretion to the Commission and to member states on how to apply the procedure", Beda Romano points out.

There is discretion above all on the timeline. There will probably be reports on how Italy has implemented these measures every three months or six months, depending on negotiations between Italy, the other member states and the European Commission.

If the government doesn't apply the measures required, it can be subjected to fines and financial measures. They are very far away as of now, but it is a possibility from a legal point of view. "Fining a member state is politically very difficult but for now what we cannot rule out and expect is the position of the Italian government would be. We can expect that financial markets will try to put pressure on the government. Having said that, the government is extremely popular and there is a profound Euroscepticism in the country. And one cannot exclude that at some point, either because of political will or because of an unforeseen accident, Italy decides for the worse”.

Eurozone tries to get stronger...where is Italy?

Italy’s isolation comes as the eurozone is seeking ways to get stronger. On Monday the Eurogroup welcomed the Franco-German proposal for the creation of a eurozone budget to fill gaps between member states and protect from future financial shocks.

For the liberal Member of the European Parliament, Guy Verhofstadt, Europe has learned a lesson from the Greek financial crisis.

“A European Central Bank on one hand and a stability and growth pact, on the other hand, is not sufficient to create a stable situation inside the eurozone and to strengthen the single currency. In my opinion, this is the main driver behind the eurozone budget. But let's be honest: this is not the only reform to introduce. I think we need euro assets and euro securities that are directly linked to the single currency to strengthen its position worldwide".

But only member states that respect EU fiscal rules will be able to use the money in the budget. That would increase pressure on the Italian government which would be forced to show its true intentions about remaining in the eurozone.

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