European Union budget chief seeks to ease tensions with Italy

Italy takes pro-Russia stance

Italy takes pro-Russia stance

European Union budget chief Pierre Moscovici delivered the letter Thursday to Economic Minister Giovanni Tria in Rome.

Conte said Italy was ready to reply to the commission's concerns but he was not anxious by the letter.

The EU letter also noted that Italy's Parliamentary Budget Office watchdog refused to validate the budget saying its economic assumptions, including a 1.5 per cent economic expansion in 2019, were too optimistic.

Arriving at the EU summit in Brussels, Conte acknowledged that budget plans to boost welfare spending, cut the retirement age and hike the deficit were unlikely to please the European Commission, which polices euro zone states' fiscal policies. Moreover, the letter also spoke about the budget deficit which, on the basis of the Italian budget plan, would increase to about 0.8% of the country's 2019 GDP even as the European Union has allocated the country's potential budget deficit to only about 0.6% of its 2019 GDP.

This means that Italy owes far more than it produces, and therefore it lives on borrowed money - a fact that policymakers must deal with if they want to finance their budgets without alienating investors and driving the country into an economic tailspin.

Concerns over Rome's expansive budget plans have weighed heavily on Italian government bonds in recent weeks, with the spread between German and Italian benchmark 10-year paper hitting 5-1/2 year highs on Friday.

"We don't want to have any type of fight, we are not interested in an escalation. market operators will be reassured by constructive dialogue", he said.

And Moody's said "stalling of plans for structural economic and fiscal reforms" also had negative implications for the country's growth outlook and debt.

The government's budget plan targets a decrease of the deficit to 2.1 per cent in 2020 and 1.8 per cent in 2021.

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Luigi Di Maio, the head of the 5-Star Movement, on Thursday threatened to lodge a formal criminal complaint.

But speaking after a cabinet meeting that settled the amnesty dispute, Italian Prime Minister Giuseppe Conte said Italy had "a comfortable place" in Europe.

While Italy's deficit is well within the 3 per cent limit laid out in treaties, the Commission has demanded smaller gaps for Italy to bring down its debt load.

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.

In the coalition contract drawn up in May, Italy's ruling parties wrote that Russian Federation should not be seen as "a menace but rather an economic and commercial partner, potentially increasingly significant".

The Italian government expects the European Commission to decide for the first time ever on Tuesday to ask a member state to revise its draft budget, a government source said on Sunday.

But Salvini, who is also leader of the right-wing League party, said the decree containing the proposal had to stay as it was if they did not want to create a risky precedent.

While 5 Star has always opposed amnesties, the right-wing League, with its traditional voter-base of self-employed businessmen, is more favourable.

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