The Italian anti-establishment government may have anywhere between three to six months to show it is committed to reducing its massive debt pile, according to the minutes from European Commission's latest meeting.
Rome has been at odds with the European Commission – the EU's executive arm and in charge of overseeing governments' fiscal positions – at different points in the last year. The conflict sparked due to Italy's spending plans, with Brussels warning the country to be more prudent given its nearly $3 trillion worth of debt.
Minutes from a European Commission meeting on June 5 showed that the institution is likely to give Italy until the end of the year to bring down its public debt pile.
"Italy would then have three to six months to implement the required fiscal effort," Economics Commissioner Pierre Moscovici said in the June meeting, according to the minutes.
This period would begin as soon as finance ministers of the euro zone give a green light to tougher scrutiny on the Italian finances – which could happen as early as July 9, when they gather for their monthly meeting in Brussels.
Moscovici also noted that Italy's 2020 budget plan, which must be submitted to the European Commission for analysis in mid-October, will be important to monitor whether the government in Rome is actually working toward a lower debt pile.
However, it is unclear what could happen after that six-month period. This is because a new executive team is due to take power at the start of November, as the five-year political cycle at the European Commission comes to end in October.
The European Commission is concerned about the possibility that Italian politicians "misuse" its words.
The minutes revealed that the Commission agreed to be "cautious" when addressing its concerns on the Italian economy "in the context of the current domestic political situation, in view of the possible partisan interpretation and misuse of messages from the European institutions."
Italy is currently being governed by an anti-establishment coalition, formed by the right-wing party League and the leftist Five Star Movement. Both parties have a similar position toward the European Union, with their own leaders often criticizing the EU's immigration and fiscal rules.
Italy's Deputy Prime Minister, and leader of the Five Start Movement, Luigi di Maio reportedly said Tuesday that the EU will allow Italy to increase its deficit to boost the economy. Matteo Salvini, leader of the right-wing Lega party, and also a deputy prime minister, has previously called the EU's fiscal rules obsolete.
The exchange of words between Rome and Brussels is often a cause of concern among market players. Italy's government debt rallied on Monday on the back of reports that the European Commission was pausing its budget crackdown on the southern country.
The yield on the 10-year Italian bond traded at 2.1750% on Tuesday morning. The same yield had hit a high of almost 3.6% last October, when the European Commission showed strong concerns about the spending plans of the anti-establishment government.