Italy defends budget despite European Union fears over high debt
Italy's debt is more than twice the European Union limit but the country's leaders say they are trying to encourage growth.
Monday 22 October 2018 15:33, UK
Italy is standing by its troublesome budget, refusing to cut spending despite debt reaching 130% of GDP.
The level of debt is more than twice the European Union limit and second only to Greece, but Italy's prime minister responded to criticism by explaining the budget, rather than adjusting it.
When asked what he would do if the European Commission rejected the budget, Giuseppe Conte told reporters on Monday: "We will sit at a table and discuss it".
The commission says Mr Conte's spending plan will see Italy's deficit rise by 1.5% but he disputed this, saying the rise was only 0.4%.
He blamed the previous government for a higher deficit than had been forecast and said the base deficit was increased further by a postponed increase in value-added taxes.
Earlier on Monday, Italian economy minister Giovanni Tria's letter to the commission was published, saying that he recognised the budget was not in line with the EU stability and growth pact.
But the government had to take "hard but necessary decisions" in an effort to boost growth, he said.
"[The budget] was a hard, but necessary decision in light of Italy's delay in catching up to pre-crisis levels of GDP and the desperate economic conditions in which the most disadvantaged citizens find themselves."
German finance minister Olaf Scholz warned Italy's leaders: "Someone with a lot of debt has to be more careful when taking on new debt than someone who has little debt."
Austrian chancellor Sebastian Kurz said the commission should reject the budget unless changes were made.
The commission will discuss the next step on Tuesday but Italy could face sanctions if its budget is rejected.
It has already told Italy that its higher deficit targets were a deviation "unprecedented in the history" of the EU's budget rules.
Last week Moody's downgraded Italy's credit rating to just one level above junk status with a stable outlook.
It cited a "material weakening in Italy's fiscal strength, with the government targeting higher budget deficits for the coming years," as well as debt holding near the current 130% of GDP "rather than start trending down as previously expected".
Despite the downgrade, however, the market in Milan, opened sharply higher - up 1.82% at 19,428 points on Monday morning.
Mr Conte also vowed that his country would remain in the EU and would stick by the euro, saying: "Read my lips; for Italy there is no chance of Italexit, to get out of Europe or the eurozone."