Italy commits to expansionary budget despite EU deficit warnings

Today marks the deadline for Rome to reply to the European Commission’s criticism of its budget proposal.

Last week, Italy’s populist government submitted its draft budget—a plan which would hike the country’s deficit when Italian debt is already among the world’s highest. Commission officials responded by calling the budget an “unprecedented” breach of EU financial policy and strongly encouraged alterations before their final approval decision.

Rome now faces two choices: negotiate with the EU and find a compromise or standby their faulty draft plan. The former would like give back some stability to Italy’s financial markets and give optimism to Europe’s united future. The latter would do much the opposite, declaring Italy’s priorities more important than the bloc’s. Expect this latter choice given the ruling coalition’s nationalist bent.

If Italy does remain steadfast, Brussels actions are unclear. On one hand, approving the budget could mean future economic trouble and indicate EU financial regulations are more guidelines than law. On the other, sending the budget back would be unprecedented, likely widening diplomatic divisions on the continent and potentially casting enough doubt on the Euro to spell another financial downturn.

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