Italy’s Prime Minister Defends ‘Beautiful’ Budget as EU Steps Up Pressure

October 18, 2018 Updated: October 18, 2018

BRUSSELS—Italy’s Prime Minister Giuseppe Conte defended the country’s “beautiful” 2019 budget, brushing off criticism from Brussels as European authorities stepped up pressure for changes to a draft that breaches the bloc’s fiscal rules on Oct. 18.

Conte also denied a rift over the fiscal plan within his governing coalition, after reports of a spat over tax revenues.

The draft, signed off by Italy’s cabinet on Oct. 15, will expand the deficit at a time when, under European Union regulations, it should be falling, as well as boosting welfare spending and cutting the retirement age.

In the first formal step of a procedure that could lead to Brussels rejecting the budget and to fines against Italy, the European Commission will send Rome a warning letter. An EU official said it was expected to be delivered Oct. 18.

European Commission President Jean-Claude Juncker said Italy had used up all the fiscal flexibility available under EU rules, and that Brussels would examine the draft without prejudice.

Conte said he wasn’t worried by the letter, and that he expected the Commission to send others to Spain, France, and Portugal.

Prior to news of the letter, he told reporters: “I’m aware this is not the budget the Commission expected. I expect critical observations. We will discuss and we will reply to these considerations.”

He described the budget as “beautiful,” having said Oct. 17—the first day of a two-day EU summit— that he saw no room for changing tack on it.

If it isn’t amended, the Commission could reject the draft by Oct. 29, in what would be an unprecedented move that could further rattle markets.

Yields on Italian benchmark 10-year bonds spiked after elections in March that gave euroskeptic parties a large boost, rising further as the outline of an ambitious fiscal plan that could further boost Italy’s public debt ratio—proportionally already the second highest in the EU after Greece—became clear.

Coalition Spat?

EU leaders also warned Italy about the budget.

Austrian Chancellor Sebastian Kurz said fiscal rules should be respected by all, adding: “Too much debt is dangerous.”

Dutch Prime Minister Mark Rutte said on Twitter he had expressed concerns over the budget plans in a meeting with Conte on Oct. 18. He added that the Commission had Netherlands’ full support in making sure EU fiscal rules were respected.

In what could be a source of concern at home, Deputy Prime Minister Luigi Di Maio, leader of the 5-Star party, said Oct. 17 a legislative text on a partial tax amnesty had been “manipulated” before its final approval, raising doubts about the stability of Italy’s coalition government and about the revenues for its budget.

The anti-establishment 5-Star has always opposed amnesties—a frequently used policy in Italy where people or companies can avoid being pursued for tax dodging by paying a fee. Its coalition partner, the far-right League, favors amnesties, which bring money into the treasury and are popular with voters.

Di Maio didn’t clarify who could have amended the document.

Asked by reporters about a possible coalition rift, Conte—who isn’t from any political party—replied: “There is no division”. He added he would work on the legislative text after returning to Rome on Oct. 19.

The head of the European Commission Jean-Claude Juncker said on Oct. 18 the summit didn’t discuss it in any detail.

“The Italian Prime Minister presented the Italian situation to us, with big talent and in a very clear way, and we did not ask him about it because (the Commission) is currently examining the draft budget as sent to us by the Italian authorities,” Juncker told a news conference.

“We have no negative prejudice against the Italian budget,” Juncker said.