Italy exit from EU budget procedure at risk due to deficit increase, central bank warns - Reuters

Italy's exit from the European Union's excessive deficit procedure could be at risk if the country's deficit rises further, according to a warning from the Bank of Italy reported by Reuters. The excessive deficit procedure is the EU's mechanism for pressing member states whose budget gaps breach agreed limits to bring them back into line. Remaining under it keeps a country's public finances subject to closer Brussels scrutiny.

The central bank's caution matters because Italy carries one of the euro area's largest public debt burdens. Any sign that deficit reduction is stalling can influence how investors assess Italian government bonds and the spread between Italian and German yields, a widely watched gauge of perceived risk. It can also shape expectations around upcoming budget decisions and EU negotiations.

For markets, the key question is whether Italy stays on the path that would end the procedure. Watch the deficit figures, the government's budget plans, and any signals from EU institutions. A deterioration would not automatically trigger disruption, but it would narrow Italy's room for fiscal manoeuvre and keep its finances in sharper focus.