ROME — The government of Italy told the European Union Tuesday it will forge ahead with its rule-busting fiscal plans despite calls from the bloc’s authorities to revise its draft budget for next year.
In a letter sent to the European Commission, Italian Economy Minister Giovanni Tria said that despite the EU criticism, they would still target a budget deficit of 2.4% of gross domestic product for next year to finance expansionary and costly measures the two antiestablishment parties in power promised their voters.
The letter also laid out plans to sell next year state-owned assets worth 1% of GDP to reinforce the government’s commitment to keep its debt on a descending path. The sales will help Italy reduce its debt to 126% of GDP in 2021, from 131.2% last year, according to the document.
The government also said it hopes the outlined measures would result in economic growth of 1.5% in 2019.
Italy’s decision is the latest step in the Rome-Brussels row over the country’s spending plans.
In October, the EU took the unprecedented step of rejecting Italy’s draft budget as incompatible with the bloc’s rules on fiscal discipline, escalating a battle between Europe’s establishment and those opposing it in Rome.
Italy had three weeks or until Tuesday to respond to Brussels. On Nov. 21, the Commission will publish opinions for all countries considered in breach of deficit and debt rules and is likely to recommend opening a so-called excessive-deficit procedure against Italy.
The budget fight could come to a head in early December, when other EU finance ministers need to decide whether to endorse or reject the Commission’s recommendation.
If Italy refuses to adopt a compliant budget, the resulting EU disciplinary proceedings could lead to fines equal to 0.2% of Italy’s GDP and freezing of some funding. Those fines can grow over time if Italy continues to defy Brussels.
Investors have dumped Italian bonds
and bank stocks repeatedly since the government was created in May, worrying that its plans would damage the country’s already fragile finances.
The yield gap on 10-year Italian government bonds over German bonds hit 3.3 percentage points in mid-October, the widest gap in more than five years.
On Tuesday, before the Italian government disclosed its response to the EU, such spread stood at 3.03 percentage points.
Rome has consistently said it needs to run a wider deficit to finance a number of policies, including lowering taxes and introducing a minimum basic income for the poor and unemployed, to boost the country’s anemic growth.
On Tuesday, the International Monetary Fund said the impact of Italy’s stimulus measures on growth “would be uncertain over the next two years and likely negative over the medium term, if elevated spreads were to persist.”
Write to Giovanni Legorano at giovanni.legorano@wsj.com
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