Is Italy’s budget crisis a bigger threat to the EU than Brexit?

The European Commission has taken the unprecedented step of blocking Italy’s high-spending budget plan, escalating a game of political brinkmanship with the country’s populist government that could push their already-fractured relationship to breaking point.

Following weeks of back-and-forth, the commission ordered the Italian government to revise its budget over concerns that it will increase Italy’s ballooning deficit, already the second highest in the eurozone.

This is the first time in history the EU has exercised the powers it obtained during the sovereign debt crisis enabling it to challenge a eurozone state’s national budget plan.

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Italy now has three weeks to submit a new draft budget to Brussels.

However, the ruling populist coalition has vowed to push ahead with campaign promises including a minimum income for the jobless and tax cuts. The government foresees a deficit of 2.4% of annual economic output next year - triple the amount forecast by the previous government.

“That would not normally be a problem as it falls well short of the 3% deficit limit under eurozone rules - except that Italy has a great deal of debt”, amounting to 131% of GDP, reports the BBC.

Speaking to reporters on a trip to Bucharest, Italy’s far-right Deputy Prime Minister Matteo Salvini said: “This doesn't change anything, let the speculators be reassured, we're not going back.

“They're not attacking a government but a people. These are things that will anger Italians even more and then people complain that the popularity of the European Union is at its lowest” the League leader said.

If Italy refuses to reconsider its budget, the EU's next step would be to open an “excessive deficit procedure” that could end with financial sanctions in 2019.

The Daily Express says EU officials have so far “been cautious about potential sanctions in order to avoid arming the eurosceptic Italian coalition, which successfully blamed the EU to propel themselves into power”.

While the paper says it is “unlikely the sanctions would ever come into force at the risk of fueling further populist revolt in the region”, Sean O’Grady in The Independent says Italy’s budget crisis nevertheless poses “a bigger threat to the EU than Brexit”, simply because “Italy has the capacity to blow up the European single currency, the euro. Britain, fairly obviously, can’t.”

As the third largest economy in the eurozone and with vast national debt, “Italy is too big to fail, yet too big to save”, he writes - meaning that if its economy does collapse it could very well take the European project with it.