(Corrects structural budget deficit figures in eighth paragraph)
BRUSSELS, Oct 15 (Reuters) - A row between the eurosceptic Italian government and the European Union over Italy’s 2019 budget could escalate in the coming days if the EU Commission decided to trigger a procedure to reject the Italian budgetary plans.
The unprecedented move would formally begin a long legal dispute that is likely to increase market pressure on Italy until it is resolved.
The procedure has been part of the European Commission’s toolbox to ensure euro zone countries’ compliance with EU fiscal rules since 2013, but has so far not been applied to any member of the 19-country currency bloc.
Below are the key dates and deadlines of the possible procedure and of relevant EU meetings:
Oct. 15: This is the deadline for euro zone states to submit to the EU Commission their draft budgets for the following year.
Oct. 22: After the submission of draft plans, the Commission has one week to identify “particularly serious non-compliance with the budgetary policy obligations” of a state. Assuming Italy submits its draft budget on Oct. 15, as is common practice, the Commission will have until Oct. 22 to make its concerns known to Italy.
Under EU rules, countries’ draft budgets should be consistent with economic recommendations agreed earlier with the Commission and euro zone peers.
In May, Italy committed to cutting its structural deficit by 0.6 points in 2019. But the government’s new plans foresee instead a rise in the structural deficit of 0.8 percent of GDP. The structural balance excludes one-off expenditures, for emergencies or natural catastrophes.
A structural deterioration is likely to increase Italy’s huge debt of more than 130 percent of GDP, which should instead fall, under EU rules.
Oct. 29: If the Commission decided to consider Italy’s draft budget non-compliant with EU rules, it has to reject it within two weeks of submission. This deadline would expire on Oct. 29 if Italy submits its budget on Oct 15. Brussels would have to explain in a written opinion its reasons for sending the budget back to Rome for changes.
Nov. 5: The Eurogroup of euro zone finance ministers holds a regular monthly meeting which would put further pressure on Rome to change its draft budget.
Nov. 19: In the event its budget were rejected by the Commission, the Italian government would have three weeks from the date of the EU opinion to submit a revised budget. This deadline would expire on Nov. 19 if the Commission’s opinion was adopted on Oct. 29.
Dec. 3: Monthly Eurogroup meeting.
Dec. 10: The Commission would have three weeks, likely until Dec. 10, from the submission of Italy’s amended budget to adopt a new opinion in which it would describe Italy’s overall budgetary position and its impact on the whole euro zone.
Dec. 13: The European Central Bank’s Governing Council holds a monetary policy meeting that is set to wrap up its bond purchase programme, a widely expected move that could, however, further increase Italy’s spiralling debt servicing costs.
Dec. 14: EU leaders at their regular end-of-year summit would likely discuss Italy’s budgetary plans if no solution was found at this stage, further increasing market and peer pressure on Rome.
Feb. 4-7: This is the week when the Commission is expected to publish its economic forecasts up to 2020, which would show whether EU calculations match Italy’s growth, debt and deficit projections which underpin budget targets. The data could pave the way to sanction procedures if EU and Italian data differed widely.
If Italy refused to change its draft budget, the Commission could open an excessive deficit procedure against Rome, which would likely push Italy again into the market spotlight, and could also trigger fines.
Sanctions procedures are usually started by the Commission when final data are available over a two-year period, which would mean that this decision would come in April 2019, just few weeks before the May’s European Parliament elections.
EU officials have, however, said that they are not legally bound to start such a procedure in April and could do it earlier, if needed.
In addition to this, under EU rules the Commission can send an “early warning” letter anytime to states that show a significant deviation from their targets.
These letters have usually been sent after the publication of EU’s quarterly economic forecasts. The warnings, if unheeded, could also trigger financial sanctions. (Reporting by Francesco Guarascio; Editing by Toby Chopra)