Italy asked for 'credible' budget commitments as it looks to placate the EU 

  • The European Commission — the EU's executive arm — has welcomed this change in rhetoric, but has also said that Rome needs to go further.
  • The Commission deemed last month that the Italian budget plan for the next year was in serious risk of non-compliance with European fiscal rules.
ROME, ITALY - NOVEMBER 29: The Vice President of the Council and Minister of the Interior Matteo Salvini attends the television show 'L'aria che tira'.
Simona Granati - Corbis | Corbis News | Getty Images
ROME, ITALY - NOVEMBER 29: The Vice President of the Council and Minister of the Interior Matteo Salvini attends the television show 'L'aria che tira'.

The Italian government has changed its tone regarding its spending plans for 2019, but that might not be enough for officials in Brussels.

Italian Prime Minister Giuseppe Conte told Italian media that he would be making new budget proposals to the European Union on Tuesday, to ensure that Rome avoids harsh actions that could create further unrest in financial markets. Other government officials had made similar remarks since Friday, suggesting a new willingness to lower the 2019 deficit target.

The European Commission — the EU's executive arm — has welcomed this change in rhetoric, but has also said that Rome needs to go further.

"We are waiting for more details to evaluate the size of these steps," Pierre Moscovici, the European commissioner for economic and financial affairs, taxation and customs, told a press conference Tuesday.

"We need commitments which have to be very concrete, which have to be credible," the former French finance minister said.

The Italian government entered a standoff with Brussels after the anti-establishment government decided to stick to its campaign pledges in the 2019 budget draft, despite warnings from the European Commission that the extra spending was a problem for debt sustainability.

The Commission deemed last month that the Italian budget plan for the next year was in serious risk of non-compliance with European fiscal rules. As a result, it suggested that opening an Excessive Deficit Procedure (EDP) was warranted. Such a process is applied to euro zone countries that are in breach of the rules and sets up specific targets to correct their balance sheets.

Moscovici confirmed that the despite the change of tone from Italy, the Commission is moving forward with the EDP procedure, preparing all the work in case Europe's finance ministers decide it's the only option for the southern European nation.

"We are walking on two feet: one is dialogue … and the other is preparation," Moscovici said.

Florian Hense, a euro zone economist at Berenberg, told CNBC via email that even if Rome brings its deficit target down from 2.4 percent to 2 percent, that "doesn't seem to be to the EU's liking yet."

Brussels is particularly unsatisfied with the level of public debt in Rome. This is the second largest in the region and is set to remain flat at 131 percent of debt-to-GDP over the next three years.

"Italy will probably do enough to muddle through and avert a debt crisis in the short-term," Hense said, but "in case the current Italian government stays on and does not get real with reforming the half-reformed country, a crisis seems almost inevitable over the long term."