Italy row with Brussels escalates, PM lashes 'diktats'

Italian Prime Minister Matteo Renzi lashed out Tuesday over Brussels' "diktats" in the latest attack on the European Commission ahead of a referendum that could decide his political future.

"The time of diktats is over," Renzi said during a meeting on the campaign trail for the December 4 referendum on constitutional reform, which could trigger his departure from office if it fails to approve changes he has championed.

The latest clash came a day after European Commission President Jean-Claude Juncker had dismissed what he termed misplaced and recurrent Italian criticism of Brussels by saying: "I could not give a damn."

Renzi has ramped up the anti-EU rhetoric in recent days, underlining his opposition to what he regards as counterproductive fiscal restraints enshrined in the bloc's Stability Pact budget rules for countries in the eurozone.

On Tuesday he said money spent on school buildings should be excluded from deficit calculations. "Anything that serves to build schools comes before the bureaucrats of Brussels," he said.

And he reiterated a threat to veto the European Union's collective budget for this year if Eastern European member states fail to do more to help Italy cope with tens of thousands of migrants arriving on its shores from north Africa.

"Either immigration policy changes or we will no longer be the piggy bank for the countries of Eastern Europe," Renzi said.

At the root of the spat is the Renzi government's belief that it should be allowed to loosen fiscal policy to drag Italy out of the economic doldrums and be granted special leeway to accommodate the costs of the migration crisis and a recent wave of earthquakes.

- Italy within the rules -

Renzi's rhetoric has struck a raw nerve in Brussels and Juncker on Monday hit back by accusing Rome of using those issues as an excuse for overtly flouting budget rules that all EU countries signed up to.

"The additional costs of policies dedicated to migration and the earthquakes amount to 0.1 percent of GDP, yet Italy, which had promised us a 2017 deficit of 1.7 percent is now saying it will be 2.4 percent because of earthquakes and refugees," he said.

Juncker's remarks were regarded as highly inflammatory by Italian officials and the reference to 0.1 percent was removed Tuesday from an official transcript of his comments released by the Commission, underlining the sensitivity of the issue.

Italy is officially forecasting that it will run a deficit of 2.3 percent of GDP in 2017 under a budget expected to include a package of tax cuts and increased public spending on infrastructure.

Renzi maintains this should be allowed because Italy is well under the EU deficit ceiling of 3.0 percent of GDP.

Commission officials say Italy should be reducing its deficit faster to ensure that the country's huge debt mountain, equivalent to more than 130 percent of its annual economic output, starts to fall.

The centre-left Renzi's tone may also be influenced by domestic factors with the "No" campaign for the referendum being spearheaded by the populist Five Star movement and the far right Northern League, both of which have eurosceptic stances on Italy's relationship with the EU.