Ahmad Gharabli/AFP via Getty images Fears of Euroskepticism blunt Brussels’ budget threats against Rome The Commission goes soft on the fiscal sins of Italy — and maybe of France.

The European Commission on Wednesday backed down from a fight with Italy over the country’s spending plans for 2019 amid fears that a continuing standoff could trigger a surge in Euroskepticism ahead of the European Parliament election.

Instead, the EU’s executive arm compromised with Rome on its controversial budget plans, which include costly initiatives such as a flat tax and a basic income for the poor, by opting against the launch of a disciplinary measure known as an excessive deficit procedure (EDP) "at this stage."

Cracking down on member countries too hard could embolden Euroskeptics, especially “if you totally ignore the overall atmosphere in the EU … or if you ignore the upsurge of nationalism,” warned the Commission’s economic and financial affairs chief, Pierre Moscovici. He also suggested that a similar “flexible and intelligent” approach would be taken with other EU countries.

After the announcement in Brussels, top Italian government officials were unusually quiet. However, Francesco Uva, an MP from the governing 5Star Movement, called the result a “historic success,” noting the government was able to avoid the disciplinary action while also ensuring campaign promises like the basic income and a major pensions overhaul would go ahead.

“Thanks to our constructive dialogue with Brussels, we were able to prove austerity isn’t the unavoidable destiny of our country,” he said in a statement.

Italy’s government will adjust down its planned budget deficit of 2.4 percent to 2.04 percent of economic output.

Government sources in Rome nonetheless admitted that they are extremely satisfied with the result and praised Prime Minister Giuseppe Conte’s key role in the negotiations. Meanwhile, Treasury officials are still working to make sure all the numbers add up.

The compromise means Italy’s coalition government of the far-right League and the anti-establishment 5Stars will adjust down its planned budget deficit of 2.4 percent to 2.04 percent of economic output.

Rome's original spending target was far above that of Italy's previous government, which was a deficit of 0.8 percent to help tackle the country's mountain of public debt, which amounts to 131 percent of gross domestic product (GDP).

EU rules require that governments keep their deficits under 3 percent of GDP and debt below 60 percent of GDP.

Had Italy proved uncompromising, Moscovici said the Commission would have been forced to begin an EDP — a punitive process intended to bring government spending back in line with EU rules.

Pro-European decision

That this didn’t happen is to the benefit of the EU, as far as Moscovici is concerned.

“If we had done anything else … the anti-Europeans would be rejoicing now,” he told journalists at a press conference in Brussels. “This is what motivated us to a strategic choice.”

“We decided together that it was better to not start an excessive deficit procedure rather than starting these proceedings just for the hell of it,” the Frenchman added. “But we played by the rules 100 percent.”

The Commission will now monitor how Italy's parliament votes on the government's new compromise budget before the year-end. If Rome fails to respect its side of the budget agreement, Brussels stands ready to propose the EDP to EU finance ministers.

"Should something go wrong, we can return to this question in January," said Commission Vice President Valdis Dombrovskis.

Meanwhile, Brussels’ compromise with Italy makes it likely that France will get similar treatment over its recent decision to increase the income of workers living on minimum wage by €100 a month to appease the Yellow Jackets protesters, who have rocked Paris in recent weeks.

French Finance Minister Bruno Le Maire was in Brussels on Wednesday to explain to the Commission how the wage hikes will impact the country's budget deficit — now expected to breach the bloc’s limit of 3 percent of GDP.

“We’re not in the process of imposing sanctions against Italy … and not sanctioning [France's planned deficit] on 3.2 percent,” Moscovici said. “The rules are the same for everyone, and everybody needs to be treated fairly.”

“I’m particularly convinced of that when it comes to France,” he said.

Silvia Sciorilli Borrelli in Rome contributed reporting.