European Central Bank Vice President Luis de Guindos warned that Italy needs to obey European Union budget rules or face higher borrowing costs that could hurt its economy even more.
Italy’s bond yields rose sharply this week as tensions between Rome and the EU Commission resurfaced, with Brussels considering a large fine in response to missed budget targets.
De Guindos issued the warning during a news conference on Wednesday. De Guindos said Italy had done a good job in generating a primary surplus ( a budget surplus before debt payments)and that its main problem was exceptionally low growth.
He also said that any rise in bond spreads would immediately translate into higher costs for the state, which could then erode any benefit of higher spending.
Sitting on a debt pile equivalent to more than 130 percent of GDP, Italy is one of the euro zone’s most indebted nations but has struggled to cut debt and recently faced conflict with the EU over the government’s plans to increase spending.