Italy, seven others under EU budget hammer

Commission’s ‘risk of non compliance’ warning to Rome hurts Matteo Renzi ahead of next month’s constitutional referendum.

The European Commission will on Wednesday tell eight national governments from the eurozone, including Italy, that their national budgets are “at risk of non compliance” with the EU’s budget rules, Commission sources involved in the decision process told POLITICO.

Besides Italy, these countries are Spain, Portugal, Belgium, Finland, Slovenia, Cyprus and Lithuania.

Another five Eurozone are “broadly compliant” with EU rules: Ireland, France, Austria, Latvia, Malta. Only the remaining five countries are fully compliant: Germany, Estonia, Netherlands, Slovakia and Luxembourg.

Greece is not affected by the Commission’s budget review because it is under a separately governed bailout program.

While not backing down from the Maastricht budget and fiscal rules, the Commission will sell the decision as a “clear political signal against austerity,” according to one official, who echoed U.S. President Barack Obama’s message in Greece on Tuesday that “austerity alone cannot deliver prosperity.”

The Commission plans to allow countries an extra 0.5 percentage point breathing space with their budget deficits in 2017 “to support recovery,” this source said. The Maastricht Treaty puts a 3 percent limit on the budget deficit and 60 percent on public debt for countries in the single currency zone.

Greek Prime Minister Alexis Tsipras used a joint appearance with Obama in Athens Tuesday to once again slam the tight fiscal policies championed by Germany, saying “the European leadership’s insistence on austerity keeps European economies trapped in stagnation, creating incalculable political and social problems.”

The Commission’s decision is likely to further complicate the efforts of Italian Prime Minister Matteo Renzi to turn the political tide in Italy. Renzi has been on the receiving end of 32 consecutive opinion polls since mid-October that say he will lose a constitutional reform referendum to be held December 4. Renzi, who has suggested he would resign if the referendum fails, is seeking to distance himself from EU edicts, and even the EU flag that has previously appeared at his press conferences, to win the vote.

Commissioner Pierre Moscovici considered Portugal for a more lenient verdict but fiscal hawks won the internal Commission debate, an official said.

The Commission is also expected to present itself as acting as “the finance minister of the euro area” through the advice offered in Wednesday’s decision, the official added.

The Jacques Delors Institute, a think tank, separately issued a report titled “Does the Eurozone need a Parliament?”, concluding that an inter-parliament “Eurozone Assembly” would be the best option for keeping the European Commission accountable as it seeks to expand its role in eurozone governance.