The EU is unhappy with Italy's budget plan — again

Tourists move in the center of Rome, Italy (Photo by AB/NurPhoto via Getty Images)

NurPhoto | NurPhoto | Getty Images

The European Commission, the executive arm of the EU, is grappling once again with Italy's spending plans.

The Brussels-based institution, which is responsible for overseeing whether European countries are meeting fiscal targets, sent a letter to Rome Tuesday asking for more clarification about the country's 2020 budget plan. The EU is specifically concerned with the country's structural balance, which excludes one-off revenues and expenditures.

The draft budget "plans a change in the structural balance in 2020 amounting to a worsening by 0.1% of GDP (gross domestic product)," the Commission said in the letter.

The Italian government had previously agreed to improve its structural balance by 0.6% of its GDP in 2020.

The Commission also asked Italy why its net primary expenditure — which does not include interest payments — is expected to grow by 1.9% next year, instead of falling by 0.1%.

This is not the first time that the EU has raised concerns about Italy's fiscal path. With the previous Italian government, which came to power in June 2018, the European Commission demanded stronger fiscal responsibility twice. The long-standing conflict between Rome and Brussels during those two periods caused market turmoil and a spike in Italian bond yields.

Italy changed government during the summer and a new leadership was sworn in by September. The current coalition is now formed by the Five Star Movement (M5S), which promotes initiatives that would extend social benefits for citizens, and Partito Democratico (PD), which criticizes both the trade unions and the banking industry.

The yield on the 10-year Italian government bond traded higher on Tuesday morning.

France, Spain, Portugal, Belgium and Finland also in the spotlight

The European Commission has also raised concerns about the fiscal plans of France, Spain, Belgium Portugal and Finland.

The French government has also been asked to clarify why its 2020 draft budget does not envisage an improvement of 0.6% of its gross domestic product in its structural balance, as previously agreed as well. Finland has also been asked about its growing public spending. In the case of Portugal, Spain and Belgium these countries did not submit completed 2020 draft budgets due to changes in government.

Read More