Alberto Pozzoli, AFP | Italy's Deputy Prime Minister Matteo Salvini has been emboldened by his right-wing League party's strong gains in last month's EU elections.

The European Commission recommended Wednesday that legal action be launched against Italy because it failed to respect EU debt rules last year and is likely to do so again in 2019 and 2020, setting up a new confrontation with its populist government.

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In coming weeks, EU member states must assess whether an "excessive deficit procedure" should be launched against Italy and the extent of any penalties. It could face billions of euros (dollars) in fines.

According to a new commission report, Italy's public debt stood at 132.2% of GDP in 2018, far above the EU's 60% limit.

"Moreover, Italy is not projected to comply with the debt reduction benchmark in either 2019 or 2020 based on both the government plans and the commission 2019 spring forecast," the report said. Debt is forecast to rise to 135%.

EU Commission Vice-President Valdis Dombrovskis told reporters that "Italy pays as much in debt servicing as for the entire education system. In 2018, Italy's debt represented an average burden of 38,400 euros ($43,251) per inhabitant, and in addition the average debt servicing cost was around 1,000 euros ($1,126)."

He added that Italian economic "growth has come to almost a halt."

The action comes at a time of rising tensions between Brussels and the Italian government, in particular Deputy Premier Matteo Salvini, who has been emboldened by his right-wing League party's strong gains in last month's EU elections.

The Italian government only won commission approval for its 2019 budget plan late last year. After some early defiance from Salvini, Rome agreed to reduce the deficit to acceptable levels.

Italy's debt load is the second-highest in Europe, after Greece. Many are concerned about new financial turmoil in Europe should Italy lose control of spending, but the government in Rome says more spending is needed to jumpstart growth after years of austerity.

Italy has one of Europe's biggest economies. Saving Greece was hard enough; bailing out Rome would be all but impossible.

Dombrovskis noted Wednesday that "we are not opening the excessive debt procedure. First, EU member states have to give their views." He said the EU's economic and finance committee has two weeks to draw its conclusions based on the report.

Italian Prime Minister Giuseppe Conte, on an official trip in Hanoi, Vietnam said: "I'll do everything to avoid an excessive deficit procedure."

But Conte also fired a warning shot, saying: "We're determined to give a critical contribution, to modify the existing rules."

Sanctions can be launched when EU countries breach, or are in risk of breaching, the deficit threshold of 3% of GDP or when they violate the debt rule by having a government debt level above 60%.

EU Economy Commissioner Pierre Moscovici extended a hand to Rome and urged it to provide any additional information it might have to change the assessment.

"We are ready to look at new data that might change this analysis, so my door is open. We can always discuss and listen," Moscovici said.

(AP)

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