EU Slams Italy's "Unprecedented" Budget Deviation, Euro Tumbles

If there was any doubt that the standoff between Italy and the EU would get worse before it gets even moar worse, moments ago any doubts were extinguished when Bloomberg reported that in the letter addressed to Italy's Finance Minister Giovanni Tria, EU Commissioners Valdis Dombrovskis and Pierre Moscovici said that Italy’s Draft Budgetary Plan for 2019 constitutes an "obvious significant deviation" from EU rules.

Specifically, the EU warned that Italy's proposed 0.8% increase in its deficit is a significant deviation from the structural improvement of 0.6% of GDP recommended by the EU Council, and is "unprecedented in the history" of the Stability and Growth Pact.

Additionally, Italy's planned government spending growth of 2.7% is about 2.6% higher than the maximum allowed under EU rules, which cap this at 0.1%.

As a result, the EU Commission warns of "particularly serious non-compliance with the budgetary policy obligations" even as it comically seeks to continue constructive dialogue with Italy to reach final assessment.

Meanwhile, both Salvini and Di Maio have made it clear that there will be no negotiation - or adjustment - to the current budget proposal. And one can't really blame them: after all, from the perspective of Italy, the EU's hypocritical position boils down to the following:

  • EU to France, Spain: "go ahead and break whatever budget limits you need"
  • EU to Italy: "we will burn you at the stake for what you are about to do"

One almost wonders just why the EU is willing to apply one standard when it comes to Spain and France, and a totally different one when the fate of Italy is (again, as Sylvio Berlsuconi remembers all too well) is on the line.

And just in case there was any doubt:

  • EU'S MOSCOVICI: THERE IS NO DISCRIMINATION AGAINST ITALY
  • EU'S MOSCOVICI: ITALY TREATED LIKE ALL OTHER EU COUNTRIES

Translation: there is discrimination against Italy, which is being singled out from other EU countries.

Meanwhile, as markets realize the true severity of the standoff between Italy and the EU, not only have Italian "lo spreads" to Bunds blown out to 5 year wides, but contagion is starting to spread with the EUR sliding to session lows, back under 1.15...

... while risk off flows have jumped the Atlantic and, as noted earlier, slammed US stocks to session lows.