The European Commission rejected Italy's draft budget Tuesday, the first time the European Union executive has thrown out a government's spending plans since the single currency was introduced nearly 20 years ago.
"The euro area is built on strong bonds of trust, underpinned by rules that are the same for everybody," commission Vice President for the Euro Valdis Dombrovskis said in a statement. "Italy's debt is among the highest in Europe, and Italian taxpayers spend about the same amount on it as on education. In this spirit, we see no alternative but to request the Italian government to revise its draft budgetary plan for 2019, and we look forward to an open and constructive dialogue in the weeks to come."
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Nineteen of the 28 EU member states have signed up to the single currency, meaning the European Commission must vet government budgets.
Italy's populist government wants to increase public spending and smash through spending targets previously agreed on with Brussels, in order to kick-start the economy as well as maintain and increase welfare payments.
Although the Italian proposal is still below the EU's deficit limit of 3% of gross domestic product, the ratio increases significantly from last year's 1.8%.
The European Commission said in a statement the 2019 draft budgetary plan expects the government deficit "to markedly increase to 2.4% of GDP in 2019, three times higher than initially planned."
On Monday Italian Economy Minister Giovanni Tria sent a letter to the commission to say Rome will stick with its budget plans despite criticism.
The Italian government, which includes the anti-EU League party, will have three weeks to respond to Tuesday's decision by the European Commission with revisions of its proposal or ignore the commission's warnings.
If Rome refuses to budge, Brussels' next step would be to open an "excessive deficit procedure" that could end with financial sanctions in 2019.