European Union leaders anxious about Italy's budget

Italian Interior Minister Matteo Salvini launched a tirage against the EU during his visit to MoscowMore

"We are here to solve the problems of the Italians, not bring down the government or let ourselves be intimidated by the ratings agencies, which have made glaring mistakes in the past-and which are wrong again this time", he said. That has never happened before.

Aimed at fulfilling electoral promises, Italy's planned spending boost is what the government calls its "people's budget".

"The combination of the tax-cutting right-wing populists and happy-to-spend left-wing populists in Rome has provided Italian bonds with a momentum that very much reminds of 2011", Ulrich Leuchtmann of Commerzbank said.

"There isn't and there won't be any plan to leave the euro or the European Union", Salvini said.

"I can not imagine a Europe without Italy or Italy without Europe", Moscovici said.

Bonds plunged on widespread expectations that the European Union would come down hard on the populist government's defiant spending plans.

The League and the 5-Star Movement, the two parties in the coalition, had been at odds over widening the proposed tax amnesty to shield financial criminals, including money launderers.

Markets reacted to Italy's plans by pushing up borrowing costs Friday to the highest levels in five years. "We would therefore ask for your arguments for not taking on board the PBO's opinion", the commission said.

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It listed these strengths as Italy's large and diversified economy, substantial current account surpluses of above 2 percent of GDP, a near balanced global investment position and high wealth levels amongst Italian families.

Italian Minister of Foreign Affairs and International Cooperation Enzo Moavero Milanesi, right, shakes hands with EU Commissioner for Economic and Monetary Affairs Pierre Moscovici on the occasion of their meeting at the Foreign Ministry Farnesina Palace in Rome, Friday, Oct. 19, 2018.

"If one breaks these rules", Kurz said, "then this means that Italy is endangering itself, but of course also is endangering others beyond that".

Di Maio, also deputy prime minister, said on Wednesday the text of the amnesty had been "manipulated" after his party had signed off on the measure in cabinet, raising doubts about the stability of the coalition government.

Brussels has demanded Italy cut spending and reduce its public deficit in order to pare down its debt pile.

The Italian government's brash attitude towards public spending has spooked financial markets, with many fearing a re-run of the debt crisis that almost saw Greece kicked out of the eurozone. The government targets growth of 1.5 percent in 2019, followed by 1.6 percent and 1.4 percent in the following years.

While Brussels has no real powers over countries' budgets, governments go to great lengths to avoid a reprimand because of the potential market implications it could have.

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