EU voices worries over Italy’s budget deficit

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Italian Minister of Foreign Affairs and International Cooperation Enzo Moavero Milanesi, right, shakes hands with EU Commissioner for Economic and Monetary Affairs Pierre Moscovici on the occasion of their meeting at the Foreign Ministry Farnesina Palace in Rome, Friday, Oct. 19, 2018.

On Wednesday Conte said he saw no room for changing tack and on Thursday described the budget as "beautiful".

"We acknowledge European institutions as our counterparties (over budget matters) ... we'll sit down around a table for a constructive and peaceful dialogue", Conte told a news conference.

Italy has until Monday to respond to the letter, which is likely to set off a back-and-forth that will go on for weeks, if not months.

The coalition included the tax amnesty in measures to fund costly electoral promises that are set to sharply lift the budget deficit to 2.4 per cent of domestic output next year, flouting European Union rules that require steady progress towards a balanced budget.

The Commission has slammed as an unprecedented breach of European Union fiscal rules Italy's 2019 budget plan, which aims to lift the deficit to 2.4 percent of domestic output next year from 1.8 percent in 2018.

The extra yield investors demand to hold Italy's 10-year bonds over comparable notes in Germany touched 327 basis points, the most since April 2013.

In the first formal step of a procedure that could lead to Brussels rejecting the budget and to fines against Italy, the Commission sent Rome a warning letter on Thursday.

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Bonds plunged Thursday as the European Union's executive body dispatched a letter to the Italian government requesting changes to its draft budget plan by October 22.

Moscovici said Italy would be treated like any other member state, adding: "I can not imagine a Europe without Italy or Italy without Europe".

The so-called structural deficit, a key measure for the Commission, which strips out effects of the economic cycle and one-off spending items, is also off the mark.

Deputy Prime Minister Luigi Di Maio, who heads the Five Star Movement, blamed Brussels for the movement, saying in a video posted on his Facebook page that the spread widened "because the markets think that the government is no longer united".

"We [the commission] were very kind, gentle, and positive, when it came to Italy, because Italy is Italy", Juncker said, adding that in the last three years Rome was able to €30bn more without sanctions by the EU's stability rules.

Luigi Di Maio told a late-night talk show that the draft presented to the Italian president contained a proposal to extend a tax amnesty on money held overseas and brought back to Italy. He denied a rift in the governing coalition. The 5-Star Movement opposes such a move, fearing possible money laundering.

The coalition government, which took office in June, has said it needs to increase spending to boost Italy's anaemic economy.

Conte, meanwhile, has called a Cabinet meeting for Saturday to resolve a dispute within the proposed budget itself.

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