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EU takes first step towards disciplinary procedures against Italy over budget plans

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By Darin Graham  & Reuters
European Commissioner for Economic and Financial Affairs Pierre Moscovici
European Commissioner for Economic and Financial Affairs Pierre Moscovici   -   Copyright  REUTERS/Yves Herman   -  

The European Union has taken its first step towards disciplinary procedures against Italy over its budget plans.

The bloc's legislative arm, the European Commission, announced on Wednesday that Italy should face action from the EU to reduce its deficit.

"With regret, that today we confirm our assessment that Italy's draft budget plan is in particularly serious non-compliance with the Council recommendation of 13 July," the European Commission said in a statement.

The Commission said the expansionary budget, which raises the deficit to 2.4% of gross domestic product from 1.8% this year was "a particularly serious case of non-compliance" with its recommendations.

The EU executive therefore launched an "excessive deficit procedure" based on the fact that projections showed Italy's public debt would not come down as required by EU rules.

An "excessive deficit procedure" requires the country in question to present a plan to correct the non-compliance detailing the policies it will follow with deadlines.

"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," European Commission Vice-President Valdis Dombrovskis said.

"With what the Italian government has put on the table, we see a risk of the country sleepwalking into instability."

The Commission, which checks that draft budgets put forward by EU members comply with limits of deficits and debt before they are voted on by parliaments, reject's Italy's argument that by expanding the budget it can boost economic growth and revenues, bringing down the debt as a proportion of GDP.

Italy has said it had no intention of changing its plans, setting up a confrontation that could last months and eventually lead to fines.

The government of Rome's 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", Salvini added.

Italy has between three to six months to respond and propose changes to the budget so to stay within the limits set by the EU’s fiscal pact. If the government refuses once again, sanctions and fines (anywhere between 0.2% to 05% of the GDP) could be imposed.