A Commission report released Wednesday showed that Italy's 2018 public debt of 2.3 trillion euros was 132.2 percent of GDP, far above the EU's 60 percent limit. The Commission estimates that it will rise to 133.7 percent this year and 135.2 percent in 2020.
The report said Italy has made limited progress in addressing recommendations from the EU, and it has backtracked on necessary structural reforms that "may negatively affect Italy's growth potential”.
The Italian government only won approval from the Commission for its 2019 budget plan late last year. In October the Commission rejected a previous version of the budget, which promised a universal basic income and scrapped pension reform, campaign promises of the far-right League and anti-establishment Five Star Movement, which won elections in March 2018.
Two weeks to decide
Commission Vice-President Valdis Dombrovskis said the disciplinary procedure is not opened yet, and that “EU member states have to give their views" on the report.
States have two weeks to assess the extent of any action that should be taken against Italy, which could face up to 3 billion euros in fines. A final decision will be taken at a meeting of EU finance ministers in early July.
The tough stance from the bloc is backed by the Netherlands and Germany, which want eurozone partners to follow budget rules, despite arguments that doing so stokes populism.
EU Economy Commissioner Pierre Moscovici extended a hand to Italy, saying: "My door is open. We can always discuss and listen."
Splits in Italy
The League and the Five Star Movement are deeply divided on how to react.
Finance Minister Giovanni Tria on Friday told Brussels that his government would do what it takes to rein in public debt, but did not provide details. Deputy Prime Minister Matteo Salvini on Saturday vowed not to yield to the EU.
There are fears that his government could collapse under the pressure, with Prime Minister Giuseppe Conte threatening to resign if the squabbling did not stop.