Fines, Freeze of EU Funds and Bond-Sale Monitoring: What Will Rome-Brussels Budget Dispute Bring?

Forex News

Budget dispute between Italy and EU remains in focus. Italy’s populist government intends to push its budget deficit to around 2.4% of GDP in 2019. Brussels wants Rome to keep its deficit under 1.6% of GDP to tackle its public debt, which is currently the second highest in the EU, after Greece, at around 131% of economic output.

EU official stated, that Italy's budget dispute with Brussels is likely to escalate in coming weeks unless Rome revises its free-spending plans. European Commission is likely to react at its November 21 meeting by launching a disciplinary procedure on the grounds that Italy's excessive debt of more than 130% of GDP is not decreasing as required.

Moreover, EU could trigger harsher sanctions, including an actual fine of up to 0.2% of GDP, the suspension of billions of euros in EU funds and closer fiscal monitoring by the European Commission and the European Central Bank, involving missions in Italy similar to those in bailed-out countries like Greece. Rome could even face even stricter penalties under EU rules. They might include a fine of up to 0.7% of GDP, a cut of multi-billion-euro loans from the European Investment Bank.