What Happened: The European Commission has sent letters to the governments of Italy, France, Spain, Portugal and Belgium to ask for clarifications on the draft budget plans they submitted in mid-October, Reuters reported Oct. 22. Brussels specifically asked the Italian government how it plans to comply with rules under the Stability and Growth Pact rules and expressed concern that Rome's budget proposal would lead to a 0.1 percent increase in structural deficit instead of a 0.6 percent cut as recommended.
Why It Matters: The commission has not yet demanded urgent corrections from any country; instead, it has asked for clarifications before potentially requesting more concrete revisions in November. While Brussels isn't interested in imposing punitive measures on Southern European governments, it will likely ask for some amendments in deficit targets.
Background: Proposals for increased public spending across the eurozone come as economic growth in the area is slowing down. The commission could take the current macroeconomic challenges into account and demonstrate more flexibility in enforcing rules on public debt and deficits. However, several countries in Northern Europe could oppose a more relaxed approach and, in turn, slow down the process of eurozone integration.
- Can Portugal Remain the Eurozone's Anomaly? (Oct. 16, 2019)
- Italy: A Coalition Deal Reduces the Heat on Rome's Political Crisis (Aug. 29, 2019)
- Italy: Rome and Brussels Gear Up for Another Deficit Fight (May 28, 2019)