Dutch leader asks Italy to stick to budget rules

Dutch leader asks Italy to stick to budget rules

Concerns over Italy's budget spending adding to the massive debt of the eurozone's third largest economy could hamper efforts to reform the framework of the EU's single currency, Dutch prime minister Mark Rutte warned his Italian counterpart on the sidelines of the European Union summit on Thursday (18 October).

The European Commission formally warned Italy late Thursday that its budget plans for 2019 are a serious concern, launching a high-stakes process that could see Rome hit with unprecedented sanctions for breaking commitments to Brussels. At 1100 GMT it traded 0.1 percent up on the day at $1.1464.Italy is the third-largest economy of the 19-country euro zone, and a crisis there could unsettle the entire bloc.

Investors have shed €67 billion in Italian bonds since a populist government formed in May, sending the risk premium Italy pays over safer German paper to a 5-1/2 year high of 3.4 percentage points.

Analysts at MUFG said that if BTP yields moved notably higher "correlations could well strengthen and this would provide further downside pressure for the euro".

"I can not imagine a Europe without Italy or Italy without Europe", Moscovici said.

The budget drew stinging criticism from the EU's top economic affairs officials, who penned a letter to Rome describing its plans as "unprecedented" and warning that Brussels does not rule out rejecting the entire budget.

The cabinet meeting was called in part because Di Maio had claimed that unauthorized changes were made to the draft budget, involving a proposal to extend a tax amnesty on money held overseas and brought back to Italy.

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"Even in the near term, Moody's believes that the fiscal stimulus will provide a more limited boost to growth than the government assumes".

Rome's escalating fight with the Commission over the budget is also alarming markets.

The government's budget plan targets a decrease of the deficit to 2.1 per cent in 2020 and 1.8 per cent in 2021.

In an October 15 report, the Bank of Italy said that at the end of 2017, the nation's public debt stood at 2.26 trillion euros, or 131.2 percent of gross domestic product (GDP). And it means Italy's debt load - which at over 130 per cent of GDP is well over the 60 per cent limit - will probably not be lowered as promised.

Luigi Di Maio told a late-night talk show that the draft presented to the Italian president contained a proposal to extend a tax amnesty on money held overseas and brought back to Italy.

Italy's planned government spending growth of 2.7% is about 2.6% higher than the maximum allowed under European Union rules, which cap this at 0.1%, and allows the European Union executive to accuse Italy of non-compliance with the budgetary policy obligations, even as it tried to continue constructive dialogue with Italy to reach a final assessment.

But Salvini, who is also leader of the right-wing League party, said the decree containing the proposal had to stay as it was if they did not want to create a unsafe precedent. He denied a rift in the governing coalition.

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