Eurozone officials have claimed the Commission is considering disciplinary action over Italy’s failure to rein in public debt, which breaks official European Union spending rules. Latest figures and EU forecasts show Italy’s debt swelled from 131.4 percent of gross domestic (GDP) in 2017 to 132.2 percent in 2018. It is predicted to shoot up further in 2019, where it is expected to reach 133.7 percent this year and 135.2 percent in 2020. The Commission can enforce a fine onto any country they deem a financial threat to the stability of all 19 euro area nations.
A warning letter is expected to be sent to Italy this week following a review on its spending.
Italy narrowly avoided being hit with EU sanctions last year following a bitter dispute over the cash-strapped nation’s controversial draft budget, which envisaged higher borrowing and spending to pay for election promises.
The Italian government was forced to revise their spending plan in line with Commission finance rules, lowering their planned deficit budget from 2.4 percent of GDP to 2.04 percent.
When the Commission made its deal with Rome in December, it penciled in a structural deficit for 2018 of 1.8 percent of GDP, but this turned out to be 2.2 percent.
EU finance ministers are set to review Italy’s spending on June 5 where sources claim it is likely the country will be deemed to have breached rules.
It is widely expected that Italy will be placed under a excessive deficit procedure (EDP) disciplinary process.
The final decision on how to sanction Italy will rest on its president, Jean-Claude Juncker.
One eurozone official, who asked not to be named, told Reuters: “The mood is definitely for action.”
Another eurozone official added: “I would not expect the Commission to give in to Italy’s demands for looser fiscal rules.
“Everybody knows that the situation in Italy is too risky for that.”
Italian Deputy Prime Minister Matteo Salvini said this week that his victory for his League party in European elections gave his far-right party a mandate to push through tax cuts and fight for changes to EU budget rules.
Under the rules, called the Stability and Growth Pact, Italy must reduce its structural deficit by 0.6 percent of output until it reaches balance or surplus.
Speaking in an interview with RTL Radio, Mr Salvini said: “Let’s see if we get this letter where they give us a fine for debt accumulated over the past and tell us to pay €3billion.”
Shortly after the news of an expected fine was announced, Italian banking stocks fell more than two percent to near four-month lows.
Italian bond yields rose sharply for a second day.