Defiant Italy says no turning back on budget despite EU 'threats'

Italy dug in its heels on Tuesday over its budget deficit despite pressure from Brussels and its eurozone partners, as leaders of the coalition in Rome threatened to sue EU officials over a deepening market sell-off.

The government last week set a deficit target of 2.4 per cent of economic output for the next three years. That tripling of its predecessor's goal unnerved already jittery investors and prompted criticism and calls for a rethink from the European Commission.

"We are not turning back from the 2.4 per cent target... We will not backtrack by a millimetre," Luigi Di Maio, deputy prime minister and leader of the anti-establishment 5-Star Movement, said in radio interview.

As Italian bonds and banking shares sold off sharply on Tuesday, Di Maio said there was "no doubt" the leaders of France and Germany wanted the Italian government to fall, while one lawmaker suggested the country would be better off outside the euro.

The ruling coalition, which joined forces in June on promises to slash taxes and boost welfare spending, directed its anger at Brussels. Its other deputy Prime Minister, right-wing League leader Matteo Salvini, said it might seek compensation from the EU...