Italian Deputy Prime Minister Matteo Salvini. Picture: REUTERS/ALESSANDRO GAROFALO
Italian Deputy Prime Minister Matteo Salvini. Picture: REUTERS/ALESSANDRO GAROFALO

Milan — The European Commission will launch disciplinary procedures against Italy on Wednesday with a letter stating that Rome’s fiscal policies lack prudence and could expose the nation to a shock loss of market confidence, newspaper La Repubblica said.

The newspaper quoted from what it said was a draft of a letter to be sent to the Italian government, which has embarked on major new welfare initiatives in an effort to boost the eurozone's third-largest economy.

The daily also said the commission would ask Rome to make budget cuts of about €3bn-€4bn to avoid EU sanctions, though it did not source this to the letter.

"The absence of prudent budget policies exposes the country to a shock loss of confidence on markets, with a negative impact on the real economy and growth," the letter was quoted as saying by La Repubblica.

Italy narrowly averted such disciplinary action late in 2018, when it reached an agreement with the commission over its 2019 budget. The commission had initially rejected the budget, saying it would not cut Italy’s large debt.

Italy lowered this year's deficit target to 2.04% of GDP from an original plan of 2.4%; however, the ruling coalition's dominant partner, the right-wing League party, has called for another big-spending budget in 2020.

League leader and deputy prime minister Matteo Salvini called on Wednesday for EU member states to convene a meeting to review the bloc's fiscal rules, which he blames for impoverishing Italians and preventing the economy from growing.

"We will do everything to stay within the established parameters but if your child goes hungry … what do you do? You stay within the parameter and let your child go hungry or review it so he can eat? Your child always comes first."

Salvini and his fellow deputy prime minister, Luigi Di Maio, discussed the possibility of breaching the EU's budget deficit rule on Tuesday in a phone conversation, said another Italian daily, Corriere della Sera, on Wednesday.

Corriere did not say in its unsourced report whether the pair came to an agreement on whether or not to exceed the deficit limit of 3% of GDP in 2020.

Salvini and Di Maio, who leads the anti-establishment 5-Star party, are to talk again about this and other issues, including a possible cabinet reshuffle, on Wednesday evening or Thursday, Corriere added.