The European Union could impose sanctions on Italy if no deal is reached on the country's budget for next year, the bloc's commissioner for economic affairs said on Tuesday.
Last month, the European Commission rejected Italy's budget, saying it was in blatant breach of European Union fiscal rules and could further increase the country's huge pile of public debt.
"I want a dialogue, but sanctions can be finally applied if we cannot reach an agreement," Pierre Moscovici told reporters on the sidelines of a meeting of EU finance ministers.
He insisted that no decision had been taken yet, as Italy still has a week to change its budgetary plans before a November 13 deadline, but he made his clearest remark on the consequences faced by Italy if it did not abide by EU rules.
"On the 13th of November we expect a strong, precise answer from the Italian government," Moscovici said.
Italy's Finance Minister Giovanni Tria reiterated on Monday that the country's budget will not change and insisted a planned larger deficit for next year would not boost the country's huge public debt which tops 130% of gross domestic product.
Sanctions menu
EU officials have said that if there is no change, the Commission is likely to react at its November 21 meeting by issuing a critical report on the country's debt, the first step of a disciplinary procedure against Italy.
The Commission has in the past always waited for final data on public finances, available in April, before taking any disciplinary action on euro zone states.
But this time, officials said it could instead act on its own economic forecasts, due on Nov. 8, which are expected to show a far less optimistic scenario than the 1.5% GDP growth in 2019 predicted by the Italian government. Estimates of lower growth would translate into a higher debt and deficit.
As a precautionary measure, Brussels could ask Italy to transfer a non-interest bearing deposit of 0.2% of its GDP to the bloc's rescue fund, the European Stability Mechanism.
The Commission could also set a deadline, that could be as early as February, for Italy to take action to reduce its debt. Euro zone states would need to approve these moves.
Missing that deadline could trigger harsher sanctions, including a fine of up to 0.2% of GDP, the suspension of billions of euros in EU funds and closer fiscal monitoring by the European Commission and the European Central Bank, involving missions in Italy similar to those in bailed-out countries such as Greece.
If it continued to fail to cooperate, Rome could face even stricter penalties under EU rules. They might include a fine of up to 0.5% of GDP, EU precautionary monitoring over Italy's plans to issue new debt and a reduction or suspension of multi-billion-euro loans from the European Investment Bank.