EU accused of ‘blackmailing’ Italy over budget

The EU and Italy could be set on a collision course if Brussels goes ahead with proposals to force the country to re-write its budget plans.

The European Commission, which checks and approves eurozone budgets before they are adopted by national parliaments, is expected to decide on Tuesday whether to issue the unprecedented demand.

Commission Vice President Valdis Dombrovskis and Economic Affairs Chief Pierre Moscovici have already stated that Italy’s budget “is in serious breach of European Union rules and asked the populist government to change tack”, reports Bloomberg. Italy, however, has refused.

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The swift response to this refusal “shows the commission’s determination to force the pace on an issue that could ultimately result in financial sanctions for Italy early next year”, says the Financial Times.

Italian newspaper La Repubblica says there is little chance the country’s populist coalition will scrap measures that enjoy public support, while German paper Handelsblatt describes Brussels’ manoeuvres as “blackmail”.

But “there’s every reason to expect the commission to deliver a so-called negative opinion - essentially a rejection of Italy’s budget - at their meeting in Strasbourg”, says Bloomberg.

Italy’s spending targets far exceeded EU limits and Italian leaders have ignored repeated warnings over the size of the country’s deficit.

“The commission really has no choice but to reject Italy’s budget,” said Mujtaba Rahman, a political analyst at Eurasia Group in London. “Both the substance of the government’s proposals and the way they are being communicated are a big headache.”

If the commission follows through with its threat, Italy will have three weeks to revise its numbers and resubmit them.

Although the commission has no real powers over national budgets, governments “have in the past sought to avoid an official reprimand because of the stigma and the potential market implications”, says Bloomberg.

But that may not be the case this time around. Italy’s populist Five Star/Northern League coalition government “is determined to be seen to do something tangible for its demanding supporters”, says The Indepedent’s Sean O’Grady. The coalition is “even threatening to print its own euro banknotes, outside the control of the ECB [European Central Bank], a fundamental breach of the European Monetary System rules”, he adds.

So far, Italian Finance Minister Giovanni Tria has shown “Syriza-esque defiance to EU targets, in what his government sees as a bid to rejuvenate the Italian economy and address social problems”, adds the Financial Times.