The emergence of the Italian government’s first budget plan has been well covered on Geopoliticalmonitor.com. The drafting process has pitted good politics against sound fiscal policy. In the beginning, it looked like the economic line represented by Finance Minister Giovanni Tria was going to prevail in coalition negotiations. But politics ultimately carried the day.

The coalition announced an expansionary spending plan that delivered on many of its expensive campaign promises, and in doing so flouted EU budgetary rules. Now the European Commission appears poised to take the step of rejecting Italy’s budget, setting the stage for an unprecedented showdown between Rome and Brussels.

This is a fight the Italian coalition believes it can win, and here’s why:

Impact

Brussels and the ECB have too much to lose. First and foremost, Rome is calling Brussel’s bluff regarding the punishment it can hand down for breaching budgetary rules. The Italian government is acutely aware of the systemic risk posed by its national debt. In the event of another sovereign debt crisis, the euro zone as a whole (European banks in particular) would be savaged by either a new massive bailout program for Rome or a general default. In other words, there’s an element of moral hazard here: The Italian government can pursue dangerous spending in the (perhaps misguided) belief that Brussels will do whatever it takes to keep bond spreads in manageable territory.