EU commission urges legal action against Italy over debt

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European Commissioner for Euro and Social Dialogue Valdis Dombrovskis speaks during a media conference at EU headquarters in Brussels, Wednesday, June 5, 2019. European Commissioners met in Brussels on Wednesday for their routine weekly college session, with talks focusing on EU economic forecasts and notably Italy's failure to control its debt. (AP Photo/Virginia Mayo)

The European Commission recommended Wednesday that legal action be launched against Italy because it failed to respect EU debt rules last year and is likely to do so again in 2019 and 2020, setting up a new confrontation with the populist government in Rome.

In coming weeks, EU member states must assess whether an "excessive deficit procedure" should be opened against Italy and the extent of any penalties. It could face billions of euros (dollars) in fines.

According to a new commission report, Italy's public debt stood at 132.2% of GDP in 2018, far above the EU's 60% limit.

"Moreover, Italy is not projected to comply with the debt reduction benchmark in either 2019 or 2020 based on both the government plans and the commission 2019 spring forecast," the report said. Debt is forecast to rise to 135%.

EU Commission Vice-President Valdis Dombrovskis told reporters that "Italy pays as much in debt servicing as for the entire education system. In 2018, Italy's debt represented an average burden of 38,400 euros ($43,251) per inhabitant, and in addition the average debt servicing cost was around 1,000 euros ($1,126)."

He added that Italian economic "growth has come to almost a halt."

The action comes at a time of rising tensions between Brussels and the Italian government, in particular Deputy Premier Matteo Salvini, who has been emboldened by his right-wing League party's strong gains in last month's EU elections.

The Italian government only won commission approval for its 2019 budget plan late last year. After some early defiance from Salvini, Rome agreed to reduce the deficit to acceptable levels.

Salvini wasted little time Wednesday in suggesting that he would soon put the commission in its place.

"I'm sure that in Brussels they will respect our will," he said. "The only way to cut the debt created in the past is to reduce taxes and allow Italians to work more and better."

"Cuts, sanctions and austerity have only produced more debt, poverty, precariousness and unemployment. We need to do the opposite," Salvini said.

Taking to Facebook, the leader of Italy's other ruling party, the populist 5-Star Movement, complained that some EU countries have been getting away with high debt for years.

"We are going to take this seriously, but we can't pretend not to know that there are European countries that, in these past years, have used much more debt than what is allowed by the (EU) treaties to relaunch their economies. And they didn't face any sanction!" Luigi Di Maio wrote.

Italy's debt load is the second-highest in Europe, after Greece. Many are concerned about new financial turmoil in Europe should Italy lose control of spending, but the government in Rome says more spending is needed to jumpstart growth after years of austerity.

Italy has one of Europe's biggest economies. Saving Greece was hard enough; bailing out Rome would be all but impossible.

Dombrovskis noted Wednesday that EU member states have to give their views before any legal action is taken. He said the EU's economic and finance committee has two weeks to draw its conclusions based on the report.

Italian Prime Minister Giuseppe Conte, on an official trip in Vietnam said: "I'll do everything to avoid an excessive deficit procedure."

But he also fired a warning shot, saying: "We're determined to give a critical contribution, to modify the existing rules."

Sanctions can be launched when EU countries breach, or are in risk of breaching, the deficit threshold of 3% of GDP or when they violate the debt rule by having a government debt level above 60%.

EU Economy Commissioner Pierre Moscovici extended a hand to Rome and urged it to provide any additional information it might have to change the assessment.

"We are ready to look at new data that might change this analysis, so my door is open. We can always discuss and listen," Moscovici said.

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Zampano report from Rome.