Italy's cabinet on Monday approved an expansionary budget for 2019 that would increase welfare spending, lower retirement age and raise deficit targets, a move that would head-on against the EU's budget norms.
The Italian government's right-wing Coalition Party and the anti-establishment five-star movement had previously announced a budget fiscal framework to raise the budget deficit next year to 2.4% of GDP.
The deficit target, which is far below the EU's 3% ceiling, is sharply higher than this year's 1.8%, disquieting financial markets and violating EU rules requiring highly indebted countries such as Italy to move steadily towards zero deficits.
So far, the European Union has been angry about this, and the European Commission threatened to reject the budget before it was formally received, sparking a war of words with the Roman authorities.
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The European Commission will assess the financial framework - a separate document in the budget - within two weeks and may reject it, asking Italy to draft a new document. Since 2013, the power of the EU executive committee has been strengthened, and this action has never been taken.
The Italian Coalition Party and the five-star movement say they will not give in, arguing that their massive spending budget is needed to boost growth and cope with rising poverty. Italy is the third largest economy in the euro area and the most depressed economy.
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