ITALIAN Prime Minister Giuseppe Conte insisted his government has no “Plan B” for its budget after the EU demanded unprecedented changes to bring the country into line with spending rules.
While EU commissioners were discussing Italy’s violations at a meeting in Strasbourg yesterday, Mr Conte said he was looking forward to explaining the 2019 budget to them.
He suggested that Italy has some leeway to tweak aspects of the plan, but not actual spending. If he is asked to change the substance, “it will be difficult for me because I cannot accept that”, he said.
Hours later the European Commission, the bloc’s executive arm, officially rejected the budget and asked Italy to take back, revise and resubmit its plans – the first time such demands have been made of a member state.
“There isn’t any B plan,” Mr Conte said. “I said that the deficit at 2.4pc of GDP is the cap. I can say this will be our cap,” he said.
While many euro nations have at times struggled to meet the deficit constraints built into the single currency since its creation almost two decades ago, Italy’s decision to reverse course on the budget plan it had agreed with the commission stands out.
It puts the country’s government on a collision course with Brussels as its spending targets far exceed EU limits.
“The Italian government is openly and consciously going against commitments made,” Commission vice-president Valdis Dombrovskis told reporters in Strasbourg.
“Europe is built on cooperation. The euro area is built on strong bonds of trust,” Mr Dombrovskis added.
Financial markets are responding to Italy’s chafing at EU rules. Italian bonds fell yesterday while the 10-year spread over similar German debt touched a five-year high during trading on Friday.
“We are ready to reduce maybe, to operate a spending review if necessary,” Mr Conte said. Still, he insisted that economic growth is “the best way in order to take us out of a debt trap”.
Mr Conte dismissed the prospect of the spread with German bunds reaching 400 basis points, a level that Credit Suisse said could put unsustainable pressure on Italy’s banking system.