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Italy Warns of Disaster if Europe Rejects its Budget

Oct 23, 2016

Italy's economy minister said on Sunday the European Union must choose between allowing Rome to raise its deficit to cope with a recent earthquake and the migrant crisis, or the "Hungarian way" of putting up barriers, which he said would spell doom for the bloc.

"Europe must choose which side to take. They can accept the fact that our deficit goes up from 2 percent to 2.3 percent (of gross domestic product) to tackle the earthquake and the migrant emergencies," Pier Carlo Padoan told la Repubblica daily in an interview.

"Or they can choose the Hungarian way, which puts up walls against the migrants and must be rejected. That would be the beginning of the end."

The Italian government has been stepping up an anti-Brussels rhetoric after unveiling an expansionary 2017 budget plan last week ahead of a referendum on constitutional reform that may decide Prime Minister Matteo Renzi's political future.

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The budget hiked previously agreed targets for the budget deficit and the public debt, with Rome insisting it needs fiscal leeway to deal with the migrant crisis on its Mediterranean borders and reconstruction after a huge earthquake in August.

The European Commission has numerous concerns about the plan and is considering sending Rome a warning letter, officials have said.

In a further blow for the government, Fitch Ratings agency cut its outlook for Italy on Friday, saying weak growth, high debt and the uncertain outcome of the Dec. 4 referendum posed risks to the euro zone's third-largest economy. Fitch said Italy's track record of "repeated delay and back-loading of fiscal consolidation reduces credibility."

Padoan said Italy had spent more money than any other European state to deal with the inflow of migrants and refugees.

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"So far no one has recognised our financial commitment ... It's a political problem, that concerns the future of the continent," he said.

Renzi was even more defiant on Friday, saying he will not be swayed by the EU and will not change the budget law. "We want to address the needs of Italian citizens, not Brussels technocracy," he said.

Opinion polls suggest Renzi may lose the referendum on his plan to reduce the role of the Senate and centralise decision making. But he has packed the budget with potentially vote-winning measures.

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