Italy has become a major concern for eurozone finance ministers who met in Vienna for the first time since Greece, their previous worry, ended its bailout programme in August.
Rome's debt currently stands at a towering 132 percent of gross domestic product (GDP), making Italy's the second largest debt ratio in the eurozone after Greece. But the anti-EU government in Rome, which brings together the far-right League party and the anti-establishment Five-Star Movement, is under pressure to meet electoral pledges and boost spending instead of slashing its deficit, as promised by the previous government.
“Minister (Giovanni) Tria assured me that currently the budget which is under preparation foresees improvement on the structural balance of Italy's budget,” Latvian Valdis Dombrovskis, Vice President of the European Commission told a news conference.
“This clearly is a commitment which goes into right direction,” he added after meeting Tria on the sidelines of the talks in Austria.
The fragile state of Italy's economy has reawakened memories of the debt crisis amid dangers that Italy could face punitive measures by its EU partners if it insisted on breaking bloc rules on running excessive deficits and high debt.
“I expect and hope that Italy will, in the next few days too, present an appropriate and sensible proposal for the 2019 budget,” said Hartwig Loger, the finance minister from Austria, which holds the EU's rotating presidency.
“If Italy should … come up with another proposal, I assume that the European Union will provide a suitable response,” he said.
Pressed on Italy, German Finance Minister Olaf Scholz warned: “I always assume that everyone adheres to European rules.”
The tensions over Italy's spending plans will grow until October 15th when Rome must deliver its budget proposal to the Commission, the EU's executive arm.
'Pragmatism will prevail'
“Austerity is one thing, lack of seriousness is another,” said the EU's Economic Affairs Commissioner Pierre Moscovici, who will lead the budget talks with Rome.
“I want to believe that seriousness, realism, pragmatism will prevail,” he added.
In Vienna, Moscovici and Dombrovskis sat down with Tria, who wants to reassure financial markets about the stability of Italy.
Nervous markets are closely tracking developments on the budget, putting pressure on the rates Italy must pay to meet its colossal borrowing needs.
In recent days, the so-called “yield spread” — which measures the difference in perceived risk between Italian and ultra-safe German government bonds — has come down from alarming levels but is still much wider than officials would like.