Careful reforms to the EU’s single currency bloc remain a work in progress, which prompted influential MEP Guy Verhofstadt to demand more urgency from Brussels to conclude its work before the next crisis strikes.
The EU’s top officials fear that next financial meltdown could be born out of Italy’s plan to run at a 2.4 percent of GDP, which has been returned to Rome with a demand for change by the European Commission.
On Tuesday, the powerful Brussels executive rejected a national budget for the first time since introducing new post-crisis fiscal rules in 2014, which were designed to avoid another disaster like Greece.
They told Italy’s populist government comprised of the Five Star Movement and League to redraft their budget and send it back to Brussels within three weeks or face an “excessive deficit procedure”, which could lead to sanctions of up to €9billion.
Of course, Rome’s populist government, who propelled themselves to power on the promise of ripping up austerity policies and to pump cash into the economy, were quick to hit back at Brussels and refuse to budge.
And their arguments are justified, after all the EU’s own guidelines permits a country’s deficit to be below three percent.
Brussels’ concerns surround Italy’s growing pile of public debt, which stands at 131 percent of GDP, and is second only to Greece’s in the bloc.
Vladis Dombrovskis, the European Commission vice-president responsible for the euro, said it had “no alternative” but to reject Italy’s planned fiscal stimulus.
EU officials believe the €2.3 trillion debt could act as a “contagion” across weaker Eurozone countries and could spark a new financial crisis.
Allowing tempers to flare between Brussels and Rome will only act in further stalling the efforts to reform the Eurozone to protect itself against potential meltdown.
Under Italy’s plans to spend more borrowed money than allowed under EU rules, dreams of a Eurozone budget and deposit scheme towards future bailouts are moving further out of reach.
One official said: “It is going to be more difficult now.
“When you talk about deposit insurance, the appetite is smaller.
“Italy is an additional argument not to even think about it.”
Others believe Rome’s actions are also harming confidence in the Eurozone’s southern and more fragile states – Spain, Portugal and Greece.
Some suggest calls for a German championed mechanism that would see a country’s market access cut to ensure they comply with fiscal rules could return as a result.
“My fear is that because of the situation in Italy, Germany can say that market discipline is a good thing because the Commission cannot enforce the rules,” a second official said.
“Maybe this can also start to convince France, if we have countries that deliberately break the rules and don’t really care about the Stability and Growth Pact any more.”
Mr Verhofstadt told EU leaders in Strasbourg they risk “sleepwalking” into the next financial crash if they allow a row with Italy to stand in the way of reforms.
He said: “It has now been ten years since the outbreak of the financial crisis and no new governance systems for the Eurozone have been put in place.
““Wake up Mr Tusk, the next financial crisis is knocking on our door.”
He added: “Mr Tusk, the way you and your colleagues in the Council evade their responsibility is a dereliction of duty sleep walking to a new financial catastrophe.
“When are you going to change your methods?
“When are you going to lock your colleagues into a meeting room – no new clothes, no new underwear – until they have taken their responsibility, until they have reformed our migration policies?”
The warnings are there, Brussels must now tread carefully to ensure a potential conflict with Rome does not consign the Eurozone to a slow death thanks to ignoring the need for reform.