EU's Tusk hopes euro zone reform progress possible despite Italy

REUTERS  Johannes P. Christo

REUTERS Johannes P. Christo

The budget proposes increasing both Italy's overall government debt and its deficit in the short run, pushing the deficit as high as 2.4% of GDP over the coming years.

The Commission will now assess the fiscal framework - a separate document from the budget law - over two weeks, and could dismiss it and ask Rome to draw up a new one. This could be in breach of European Union fiscal rules that require Rome to lower its large public debt.

The Italian budget is set to increase spending largely to pay for the minimum basic income proposed by the Five Star Movement but Juncker said he would not condemn the specific policy, saying: "If I said that we are against those measures, this would have as a outcome that some in the Italian government would attack the Commission because it prohibits fighting against poverty".

The consent of Italy, the euro zone's third biggest economy, is necessary for the process to go forward.

"We're going to have a debate virtuous with our Italian friends, who know that their public debt level is too high and that the project budget does not meet in full the recommendations of the Council of ministers, the european Council", he added, stressing the" difference between what was promised and what is presented today".

Markets Right Now: Stocks surge to biggest gain since March
Johnson & Johnson and UnitedHealth, the nation's biggest health insurer, also rose sharply after releasing their results. At Morgan Stanley, Goldman's traditional rival, revenue from equity trading rose 6%, while bond trading rose marginally.

Its key measures include a basic income for the poor, a partial amnesty for citizens who settle tax disputes with the authorities, and tax cuts for the self-employed.

Italian bond yields rose again on Wednesday and the 10-year government bond yield rose to 3.54 percent, pushing the gap over German Bund yields back above 300 basis points.

"I am confident we can have a constructive dialogue", he said, referring to the bloc's executive European Commission, which is monitors fiscal policies of euro zone states. Although any such procedure is unlikely to end with the application of fines, it would likely generate further tensions between Italy and the EC, and increased volatility in the Italian sovereign bond market. Officials sought to play down the chances of a major clash, with Giovanni Tria, Italy's foreign minister saying that the "idea that this budget will blow up Europe is totally unfounded".

The 70-year old economics professor, unaffiliated to either ruling party, had pushed for a lower deficit target but was overruled by party chiefs, triggering reports that he planned to resign after the budget is approved by parliament.

In June, Macron criticised Salvini for closing Italian ports to the Aquarius migrant rescue boat, prompting a fresh summoning of the ambassador. Italy submitted the draft budget at the last minute on Monday night.

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