Who Blinks First?

The European Commission has told the Italian Government that its budget is not acceptable, and the Italian government has told the European Commission to pound sand:

The Italian government will not budge from its position on the country’s budget plan even though it is in breach of EU rules.

In a three-and-a-half page letter sent on Monday to commissioners Pierre Moscovici and Valdis Dombrovskis, Finance Minister Giovanni Tria wrote: “Italy is aware it has chosen a path that isn’t in line with EU rules. It was a hard decision but necessary in order to bring the country’s GDP back to pre-crisis levels and considering the ongoing economic difficulties for Italians.”

Tria went on to address the three objections raised by Moscovici and Dombrovskis in their letter to him last week, saying the government is confident it can achieve the ambitious growth targets it has outlined. Tria’s letter explained that the government will increase public investments and implement a number of significant structural reforms that should help trigger such growth. However, should Italy’s “growth trajectory evolve differently to what we expect, we would intervene,” he wrote.

Tria concluded the letter by saying that although the positions of Rome and Brussels are different, he hopes a “constructive dialogue” within the framework of EU rules can continue. He said Italy’s place is “in the eurozone.”

This situation is likely going to be rather different than that of Greece, or even Spain:  Italy is a far larger economy, and its current ruling coalition is not irrevocably linked to the Euro or the EU as, for example, Syriza was in Greece, which made meaningful negotiations impossible.

Also, it should be noted that even with the spending increase, the budget remains in primary surplus (its revenues exceed all spending but interest on the debt).

As I've noted before, the problem with the EU in general, and the Eurozone in particular, is the hegemony that Germany, and its economic philosophy, hold over the entire European Project.

Even without the obvious history, current events have shown this to be a bad thing.