What happens after the European Commission rejects Italy's budget?
Ansa reports that the commission has rejected the government's revised budget and is of the view that disciplinary procedures are warranted against Italy over excessive debt. The second part is the more telling issue as it means that the commission is seeking to launch a EDP (excessive debt procedure) against Italy.
In some ways, it's a signal that they don't want to go to the negotiating table and is telling Italy that this is the only way to go unless the government is willing to risk being sanctioned or fined.
By launching a EDP against Italy, it forces the coalition government to provide a plan of corrective action and policies that it will adhere to - which are likely those that is set out by the commission itself. Not only that, Italy's government would need to provide deadlines for achieving said goals as well. Failure to comply with such measures may result in a fine.
EDPs are nothing new in the Eurozone as many countries have been in this predicament before, but what separates this case from the rest is that Italy's populist government hasn't been taking too kindly with European officials on this matter and this risks further escalation and will keep open the Italexit door, as much as the government denies it.
In turn, it will continue to keep Italian bond markets on edge, and the fear there is that there will be contagion effects if the bond yields spread rises high and sharp enough to provoke fear across markets.
After the commission's decision today, it is now over to the Economic and Financial Committee where they will have two weeks to review the case and deliver their opinion. Only then can the commission proceed with such a move against Italy, providing that Eurozone finance ministers endorse the decision as well. This is going to be a long drawn out issue so expect things to continue developing over the coming weeks.
