EU budget chief seeks to ease tensions with Italy

MILAN (AP) -- The European Union's budget chief sought to ease tensions with Rome on Friday over Italy's rule-busting budget, after markets reacted by pushing up Italy's borrowing costs to the highest levels in five years.

Pierre Moscovici told reporters in Rome that he did not see a risk of contagion in the market reaction to the European Commission's stinging letter rebuking the proposed Italian budget.

"We don't want to have any type of fight, we are not interested in an escalation ... market operators will be reassured by constructive dialogue," he said.

The Italian government has until midday Monday to respond to the EU letter, which expresses concern about Italy's structural deficit and its high debt level, and seeks more information about Italy's growth outlook from its new populist government.

"We all know that the situation is delicate and we don't want to create more tensions," Moscovici said. "The ball is now in the Italian authorities' court."

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.

But Italy is one of the 19 European nations who use the joint euro currency — and its eurozone partners have been more outspoken than Moscovici about the need for Italy to give up plans that will push its deficit up to 2.4 percent — three times higher than promised by the previous Italian government.

The EU presidency says it "is really, really decisive" for Italy to change its draft budget because otherwise Italy would not only threaten its own financial health for also that of its eurozone partners.

"We as the European Union are not prepared to take on this risk, these debts for Italy," Prime Minister Sebastian Kurz of Austria, which holds the rotating EU presidency, said 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 represented a deviation "unprecedented in the history" of EU budget rules.

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

Italy's premier, Giuseppe Conte, told reporters in Brussels that the budget did not need to be changed, just explained to the commission members. He insisted the increase in the structural deficit is less than the EU calculates.

Conte, meanwhile, has called a Cabinet meeting for Saturday to resolve a dispute within the proposed budget itself.

The 5-Star Movement leader, Luigi Di Maio, insists that the draft contains unauthorized changes to extend a tax amnesty to Italians with bank accounts abroad. The 5-Star movement opposes such a move because it could benefit organized crime or tax cheats hiding money aboard.

Matteo Salvini, the leader of the League party, insists the language was always in the draft but said he was willing to give it up to preserve the ruling coalition.

Both parties want to maintain their populist government at least until the European Parliament elections in May, the outcome of which could shift the delicate balance in the governing coalition.