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Italy hits back after EU raises concerns over Rome's growing deficit

Key Points
  • At the same time, the estimates from the European Commission also indicate that Italy could be in breach of the EU's fiscal rules in 2020, given that European countries are not meant to have a deficit higher than 3%.
  • Italian Prime Minister Giuseppe Conte said Tuesday the economic forecasts "seem ungenerous" and show a "prejudiced attitude," the Italian news agency Ansa reported.
Giuseppe Conte, Italy's prime minister, gestures as he speaks during an interview at Chigi palace in Rome, Italy, on Tuesday, Oct. 23, 2018. 
Alessia Peirdomenico | Bloomberg | Getty Images

The spat between Italy and the European Commission has resurfaced after the Italian government slammed the Brussels-based institution's economic forecasts as "ungenerous" and "bogus."

The European Commission — the EU's executive arm — presented Tuesday its latest economic forecasts, where the Italian budget deficit is seen hitting 2.5% of its GDP (gross domestic product) this year and rising to 3.5% in 2020.

These forecasts suggest that Italy will not respect previous commitments with Brussels that stated the country's 2019 budget deficit would not go beyond 2.04%. At the same time, the estimates from the European Commission also indicate that Italy could be in breach of the EU's fiscal rules in 2020, given that European countries are not meant to have a deficit higher than 3%.

Italian Prime Minister Giuseppe Conte said Tuesday the economic forecasts "seem ungenerous" and show a "prejudiced attitude," the Italian news agency Ansa reported.

Furthermore, the anti-establishment party Five Star Movement, one of the two forming the coalition government, also said that the European Commission was trying to "hit this government politically by using bogus estimates," Ansa reported.

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According to the European Commission, certain measures put forward by the Italian government will not be enough to offset higher spending levels.

The Italian 2019 deficit was the subject of heated discussions between Rome and Brussels at the end of last year. Rome had told Brussels that it would lower some of its spending plans for 2019, so its deficit would not go beyond a target of 2.04%. But initially it wanted to increase spending to 2.4% of GDP for 2019. However, that threshold was lowered after the Commission raised concerns about the country's debt levels and hinted at disciplinary action for Italy.

The European Commission forecasts also revealed Tuesday that Italy — the euro zone's third largest economy — will be the slowest growing economy in the EU during 2019. Growth projections showed a mere 0.1% for GDP growth this year. Italy has the second-largest debt pile in the EU and, according to the latest forecasts by Brussels, the Italian debt-to-GDP ratio will hit 133% this year and rise to 135% in 2020.