Italy Refuses to Revise its Budget

Italy will not be revising its draft budget. The government has defied the European Commission’s request to present a reworked budget by midnight yesterday, with Deputy Prime Minister Luigi Di Maio insisting that “this budget is what the country needs to get back on track”. The original budget was rejected last month for breaching EU rules on public spending.

The EU has never fined a country for breaching its budget rules before but could issue penalties starting at 0.2% of Italy’s GDP.

The Italian governing coalition argues an increase in spending will kick-start growth.

The International Monetary Fund has said Italy’s fiscal stimulus plans would leave the eurozone’s third-biggest economy vulnerable to higher interest rates that could ultimately plunge it into recession.

The IMF said after an annual review of Italy’s economic policies that any temporary, near-term growth gains from the stimulus is likely to be outweighed by the “substantial risk” of a rapid deterioration.

Last month, the ratings agency Moody’s cut Italy’s sovereign debt rating to one notch above junk status because of concerns over government budget plans.