European Union leaders discussed eurozone reforms and the Italian draft budget at their summit in Brussels, with concerns on the rise over the planned budget boost by Rome's populist coalition government.
The populist government of italy has pledged on Saturday to explain his budget 2019 strongly criticized in Brussels, while repeating his commitment to keep the country in the euro zone, during a press conference following a council of ministers.
This is the second letter sent to Rome by the European Union executive over Italy's expansionary draft budget for next year which is in breach of European Union fiscal rules.
"Those three factors would seem to point to a particularly serious non-compliance with the budgetary policy obligations laid down in the Stability and Growth Pact", said a letter to Italian finance minister Giovanni Tria, which surfaced late Thursday.
Meanwhile, market participants say the recent euro devaluation against the pound sterling could be connected to Italy's budget woes. Even a default on Italy's debt alone might not be enough to capsize the entire Eurozone - but coupled with a possible "no-deal" Brexit, Italy's brewing crisis could deal significant damage to the euro area.
Italian Minister of Foreign Affairs and International Cooperation Enzo Moavero Milanesi, right, shakes hands with EU Commissioner for Economic and Monetary Affairs Pierre Moscovici on the occasion of their meeting at the Foreign Ministry Farnesina Palace in Rome, Friday, Oct. 19, 2018.
Italy insists the increased spending in its plan is necessary to boost growth, which will bring down debt, and that the higher deficit will in turn come down.More news: Patriots Fans Spray Beer And Flip Bird At Chiefs Star Tyreek Hill
"We have so numerous opponents to the outside, which have an interest to have an Italy precarious, knees and slavish (...), that we have a duty to listen to us", said Mr Salvini, while promising that the text would protect them in spite of "millions of Italians hostage to the tax man". "In contrast, a more lenient approach would further undermine the credibility of the EC's tortuous fiscal rules and irritate some member states from Northern Europe".
The 5-Star Movement leader, Luigi Di Maio, insists that the draft contains unauthorized changes to extend a tax amnesty to Italians with bank accounts overseas.
Luigi Di Maio, the head of the 5-Star Movement, on Thursday threatened to lodge a formal criminal complaint.
He wasn't the only critic, with former Eurogroup chief, Jeroen Dijsselbloem, warning that an Italian budget crisis would lead to an "implosion" within the country's fragile banking sector.
The League and the 5-Star Movement, the two parties in the coalition, had been at odds over widening the proposed tax amnesty to shield financial criminals, including money launderers.
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.