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European Commission rejects Italy's budget proposal

Italian deputy prime ministers and prime minister
Italian Prime Minister Giuseppe Conte (center) with Deputy Prime Ministers Luigi Di Maio (left) and Matteo Salvini (right). Photo: Simona Granati - Corbis/Getty Images

In an expected but unprecedented step, the European Commission has rejected the budget proposal put forth by Italy's populist government, Bloomberg reports.

Why it matters: Italy's budget proposal included tax cuts and a guaranteed "citizens income" for the poor, and would have raised its annual budget deficit to 2.4% of GDP. Italy's debt is already the second-highest in Europe, and its plans to boost spending have sparked investor fears and prompted Moody's Investors Service to downgrade the country's debt to one level above junk.

The big picture: The European Commission asks all EU member states to submit budgets that keep their annual deficits below 3%. While Italy's proposal meets that limit, its overall debt currently sits at a sky-high 130% of GDP. Italy now has three weeks to revise its plans and submit a new proposal, but Prime Minister Giuseppe Conte has reportedly said the government has no "Plan B" for fiscal spending, per Bloomberg.

What to watch: The budget rift between Italy and Brussels will likely fuel even stronger feelings of discontent in one of the most Euroskeptic countries in the EU.

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