Italy just took a step closer to a major clash with the rest of Europe over its budget crisis

pulse

October 16, 2018 1:22 PM

The budget proposes increasing both Italy's overall government debt and its deficit in the short run, pushing the deficit as high as 2.4% of GDP over the coming years. This means Italy will fall foul of a previously mandated deficit level of 0.8% of GDP maximum.

Italy submitted its budget for review to the European Union on Tuesday, likely bringing tensions over the country's spending plans to the fore.
The budget proposes increasing both Italy's overall government debt and its deficit in the short run, pushing the deficit as high as 2.4% of GDP over the coming years.
This means Italy will fall foul of an EU-mandated maximum deficit level of 0.8% of GDP, and could lead to clashes between Brussels and Rome.
Both leaders of the Italian coalition government are eurosceptic and a hardline from Brussels could stoke tensions.

Italy's government on Tuesday pushed the country closer to a showdown with the European Union after submitting its latest budget for review.

Official policy is that the government backs remaining in the European Union, but both Salvini and Di Maio are avowed eurosceptics, and Salvini is believed to privately back an exit from the single currency.

In May, a leaked report,published in part by the Huffington Post, showed that both parties discussed a commitment to leave the euro prior to entering into government, before abandoning that pledge.

Officials sought to play down the chances of a major clash, with Giovanni Tria, Italy's foreign minister saying that t

The threat of a clash between Rome and Brussels comes as the Italian political situation continues to spook markets. Last week, Italian stocks briefly slipped into a bear market, and while they have rebounded a little, they remain subdued — although Italy's benchmark share index, the FTSE MIB is more than 1% higher on Tuesday.

Bond markets have also responded strongly to the crisis, with the yield on the 10-year Italian bond rising above 3.6% last week, its highest level in four years.

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