Italian leaders won't negotiate budget despite EU sanction threats

Nov. 21 (UPI) -- Italy refuses to negotiate its budget despite threats from the European Union that it will sanction Rome if changes aren't made.

Italy proposed a budget that would increase the country's deficit to 2.4 percent of annual economic output for 2019. The European Commission rejected the budget, saying it's in "serious non-compliance."

Italy's public debt is $2.6 trillion, or 131 percent of its gross domestic product. It's the second highest of any EU country.

European Commission Vice President Valdis Dombrovskis warned Italy's budget would bring more austerity to the Italian people.

"Instead of that fiscal stimulus that the government is hoping for, (we expect) there is a further slowdown of the economy," Dombrovskis told CNBC. "You cannot cure high levels of debt with more debt, it is a vulnerability that needs to be addressed."

The European Commission could ask the European Council, which includes all the heads of state, to issue an excessive deficit procedure for Italy, which requires a plan of corrective action and policies to fix the country's debt problem.

"Our analysis suggests that the debt rule must be considered to have not been respected," the European Commission said. "We conclude that the opening of a procedure for excessive deficit based on the debt is therefore justified."

Italy's ruling 5 Star Movement argues that the deficit is needed to fund key pledges and revive growth.

Italy's Deputy Prime Minister Matteo Salvini said the deficit target wasn't negotiable but other parts of the budget could be discussed. Any sanctions against Rome would be "disrespectful" toward Italians, Salvini said.

"We are convinced about the numbers in our budget," Salvini said. "We will talk about it in a year's time."