In a formal response to the EU, Italian Economy Minister Giovanni Tria indicated the country will stick to its draft budget plan. That is, the deficit to GDP target for 2019 will be kept at 2.4%. Though, Tria expressed the eagerness to engage in conversation with EU. Prime Minister Giuseppe Conte also emphasized that 2.4% is the cap that “for sure we won’t exceed”.

Tria said the budget was a “hard, but necessary decision in light of Italy’s delay in catching up to pre-crisis levels of GDP and the desperate economic conditions in which the most disadvantaged citizens find themselves in”. And, “the government trusts that what it has explained is sufficient to clear up the setup of its budget and that the (fiscal) law will not put at risk the financial stability of Italy or other EU state members.”

Also, he said “while recognizing the divergence of the respective evaluations, the Italian government will remain in a constructive and fair dialogue.” And, “the government is confident it can get investment and GDP growth moving again and that the recent rise in the government bond yields will be reabsorbed as the investors learn about all the details of the measures in the budget law.”

European Economic Affairs Commissioner Pierre Moscovici talked about Italy again in Franc Inter radio today. He emphasized that the European Commission does not want any crisis with Italy over it’s budget. However, questions are there and the Commission is awaiting Italy’s answers.

Moscovici said that “the European Commission does not want a crisis between Brussels and Rome.” And “my state of mind is that of constructive dialogue.” Though, he also reiterated that “when you are an EU member and a member of the single currency, of the euro zone, you must respect a number of joint rules.” Moscovici has been rather cautious in handling Italy. While last week’s letter to Italy regarding the budget was strongly worded, Moscovici later said he wanted to reduce tensions, and solve the budget issue through “constructive dialogue”.

On the other hand, Austria Chancellor Sebastian Kurz warned that “if it is not amended, the European Commission must reject the budget” of Italy. Kurz added that “Austria is not prepared to stand up for the debts of other states while these states knowingly contribute to uncertainty in financial markets”. And he urged the EU to “prove that it has learned from the Greece crisis.”

EU Commissioners Valdis Dombrovskis and Pierre Moscovici wrote a joint letter to warn Italy of its budget plan. Handing the letter directly to Italian Economy Minister Giovanni Tria, the EU started the first formal step to reject the budget which will lead to direct clash between Rome and Brussels. Italy will now have until October 22 to respond to the letter.

EU said in the letter that Italy’s plan is an “obvious significant deviation” of the recommendations adopted by the European Council under the 2019 Stability and Growth Pact. Also, while the Council suggested fiscal adjustment, the Italy plans fiscal expansion of close to 1% of GDP, and the “size of the deviation (a gap of around 1.5% of GDP) are unprecedented”.

EU also criticized that the macroeconomic forecasts under the plan has not been endorsed by the Parliamentary Budget Office. And this appears “not to respect” the rules of having forecasts produced or endorsed by an “independent body”.

Italian Prime Minister Giuseppe Conte said they’re ready to reply to EU’s concern and he’s not worried.

EU’s letter to Italy here.

European Commission Jean-Claude Juncker said Italian Prime Minister Giuseppe Conte presented the budget to EU leaders. And Juncker hailed that Conte did that “with big talent and in a very clear way”.

Nonetheless, Juncker also said “we did not discuss the Italian draft budget in detail, that was not the meeting to doing so, but I know from the past that the Commission has always been accused of being too generous when it came to Italian budgets.”

Though, he emphasized that “we have no negative prejudice against the Italian budget”. And, “we were very kind, gentle and positive when it came to Italy. Because Italy is Italy.”

Separately, German Chancellor Angela Merkel said “everyone is determined to put a package on the table by the December summit that describes the banking union of the future and also says something about the roadmap – i.e. the way to a deposit guarantee and describes progress on the capital markets union.”