Italian markets hit by concerns over budget spat

Italian prime minister Giuseppe Conte stands on stage at a 5 Star Movement rally in Rome. REUTERS

In its review of Rome's budgetary plans, the EU Commission can raise concerns until Monday.

The spread between yields on Italian benchmark government bonds and the German equivalent widened on Friday to a 5-and-a-half-year high of some 340 basis points before falling back to just over 300 points late Friday.

The EU's executive Commission, which must vet Italy's 2019 draft budget, has already warned that the nation's significantly higher deficit targets represent a deviation "unprecedented in the history" of EU budget rules.

Italy suffered another rocky day on the financial markets Friday, as European Economic and Financial Affairs Commissioner Pierre Moscovici wound up the second day of a two-day visit to Rome during which he delivered a letter from the European Commission to Finance Minister Giovanni Tria asking him for clarification on Italy's draft budget.

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

"As long as I'm head of this movement and a minister of this government I'll always guarantee that Italy remains within the euro and in Europe", he added. "Nor a euro without Italy or Italy without the euro".

Italy insists that the increased spending in the plan is necessary to boost growth, which will bring down debt, and that the higher deficit will in turn come down.

European Central Bank Governing Council member Ewald Nowotny said on Friday that the budget battles could harm Italian lenders, which will be the main buyers of the country's sovereign debt when the ECB ends its purchasing program.

The European Union's presidency says Italy must change it draft budget because otherwise the country would only threaten its own financial health as well as that of its partners.

Italy's ruling coalition patched up a row over a tax amnesty and struck a more conciliatory tone towards European Union (EU) institutions, saying it wanted to discuss its budget plans with Brussels.

Asked by reporters about the coalition rift, Conte - who is not from any political party - replied: "There is no division". "In contrast, a more lenient approach would further undermine the credibility of the EC's tortuous fiscal rules and irritate some member states from Northern Europe".

Italy's Prime Minister Giuseppe Conte gestures during a news conference after a cabinet meeting at Chigi Palace in Rome, Italy.

Luigi Di Maio told a late-night talk show that the draft presented to the Italian president contained a proposal to extend a tax amnesty on money held overseas and brought back to Italy.

But Salvini, who is also leader of the right-wing League party, said the decree containing the proposal had to stay as it was if they did not want to create a risky precedent.

While 5-Star has opposed tax amnesties in the past, the right-wing League, with its traditional voter-base of self-employed businessmen, has pushed for the measure, arguing it could raise billions of euros for the cash-strapped treasury.

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