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Italy in serious breach of EU budget rules, European Commission formally warns

The European Commission has formally notified Italy that its 2019 draft budget is in serious breach of EU fiscal rules, setting the stage for a potential rejection of the country's budget plan.

In a letter to Italian Economy Minister Giovanni Tria, the Commission said the draft budget projected a nominal rate of growth of net primary government expenditures of 2.7% in 2019, above the recommended maximum increase of 0.1%.

The draft budget would also increase Italy's structural deficit by 0.8% of GDP, the Commission said, instead of reducing the gap by 0.6% of GDP, as suggested by the EU in July.

Italy's budget plan would also not ensure compliance with the EU's public debt reduction benchmark, which requires a steady decline of debt level toward a debt-to-GDP ratio of 60%, the Commission said. Italian government debt currently stands at around 130% of GDP.

These factors appear to indicate a "particularly serious non-compliance with the budgetary policy obligations laid down in the Stability and Growth Pact," the Commission said, referring to an agreement among EU member states to maintain economic and monetary equilibrium.

The Commission asked Tria to respond to its letter by Oct. 22, as it prepares its official opinion on the country's budget plan.

Italian Prime Minister Giuseppe Conte brushed off the EU's criticism, saying the country's deviation from the bloc's fiscal targets was "not large," Reuters reported.