Italy risks $4b EU penalty for failing to rein in debt

Bloomberg

The European Commission is considering proposing a disciplinary procedure for Italy next week over its failure to rein in debt, which could pave the way for a 3.5 billion-euro ($4 billion) penalty, according to an official familiar with the matter.
The step could come as part of the European Union’s regular budget monitoring process, most likely on June 5, and would mark an escalation of Rome’s budget tussle with Brussels that roiled markets at the end of 2018.
The official asked not to be named, as the decision hasn’t been finalised, while an Italian finance ministry spokeswoman declined to comment.
Italian bonds fell on the news, with the yield on benchmark 10-year notes climbing 12 basis points to 2.66 percent. The euro extended its decline to fall 0.1 percent to $1.1192.
Italian Deputy Prime Minister Matteo Salvini indicated he’ll push back against EU demands when crafting his next budget. Salvini has the upper hand in the populist coalition after his party enjoyed a resounding victory in European parliamentary elections.
“I’m told a letter from the European Commission on the Italian economy is on its way,” Salvini said in Milan.
“I think Italians gave me and the government a mandate to completely, calmly and constructively re-discuss the parameters that led to unprecedented job instability, unemployment and anxiety.”

DEPOSIT DEMAND
The commission’s recommendation would be only one step in a long, convoluted process, which requires EU governments to weigh in several times. EU finance ministers would have to sign off on a so-called excessive deficit procedure recommendation, at which point a “non-interest bearing deposit” of up to 0.2 percent of gross domestic product — around 3.5 billion euros — could be demanded.