Just over a week ago, Italy submitted a revision of its 2019 budget proposal to the EU Commission after having the first draft flatly rejected for violating the EU’s rules on . There were no significant modifications to the original. The only new proposal put forward was a review procedure put in place in the event that growth targets were not being reached in the second semester of 2019.

The Eurozone’s fiscal compact demands that Eurozone members with an excessive debt-to-GDP ratio cut their debt every year. To do so, they must reduce their structural deficit and maintain a budget surplus.

Italy has projected a drop of its debt-to-GDP ratio from 131% in 2018 to 127.3% by 2020. The European Commission expects the level of debt to remain flat at 131%.

“They want to penalise us, but this will end up being more damaging to the EU than to us,” Italy’s Deputy Prime Minister Matteo Salvini told the press on November 19, and later called on Italian to “rise up” if the  EU’s excessive deficit procedure is initiated.

The Italian government insists that amid a decelerating economy, the government needs an expansive, anti-cyclical budget, to maintain growth.

Trigging the EU’s excessive deficit procedure – the body of rules that govern the coordination of EU countries’ fiscal policies – must be approved by the bloc’s finance ministers. If Italy does not back down, the procedure could be triggered by the EU’s finance ministers on January 21-22. The Commission can then give Rome a 20-day deadline before demanding a non-interest-bearing deposit to the tune of 0.2% of Italy 2018 GDP.

The President of the European Central Bank, Mario Draghi, offered a stark warning that “countries with a high public debt” should not make any moves increase it further.

Draghi, however, hinted for the first time that the European Central Bank would retain historically low-interest rates if borrowing costs rise too far or inflation slows. What complicates matters is that this accommodation may not be in Draghi’s hands, as his term is due to expire by May 2019.

The ECB is due to end its €2.6 trillion bond-buying programme in December and raise interest rates by next summer.

On November 19, Draghi hinted that an interest rate hike may have to wait “If the financial or liquidity conditions should tighten unduly or if the inflation outlook should deteriorate.” The comment received praise from Salvini, who complimented Draghi for his commitment to protecting the country and its savers.

Draghi has been credited for preventing a break-up of the Eurozone in the summer of 2012 by saying the ECB would do “whatever it takes” to save the euro and initiated an unprecedented bond-buying programme that reduced sovereign debt.