The EU Commission has again rejected Italy's proposed budget on Wednesday, paving the way for financial sanctions to be applied in the next few months.

The Commission confirmed its assessment that "Italy's draft budget plan is in particularly serious non-compliance," Commission Vice-President Valdis Dombrovskis told a press conference in Brussels.

Dombrovskis said with the Italian government's current plan "we see a risk of the country sleepwalking into instability." 

"We conclude that the opening of a debt-based excessive deficit procedure is warranted," he added, referring to the EU's disciplinary process against member states for over-spending.

The Commission's step is required for countries whose debt levels are above the Eurozone threshold and who are not doing enough to reduce borrowing.

Italy's government still defiant

The country's government, led by a coalition between the populist Five-Star Movement and the far-right Lega, has remained largely defiant towards Brussels.

On Wednesday, deputy prime minister Matteo Salvini said any EU sanctions against Rome would be "disrespectful" towards Italians.

"We are convinced about the numbers in our budget. We will talk about it in a year's time," he told reporters.

Rome and the EU Commission had been at odds for weeks over Italy's budget after it had been rejected by the Commission a first time.

Last week Italy submitted a revised version of its budget with only minor adjustments that did not appease the Commission and EU member states.

A 'very moderately' expansionary budget

The proposed budget aims to increase spending, which according to the government is the only way to jump-start the country's ailing economy after years of austerity.

On Monday, Italian Economy Minister Giovanni Tria described the budget as "very moderately" expansionary. But the Commission believes such an increase in spending could be dangerous for Italy and the whole eurozone.

Italy plans to raise its budget deficit to 2.4 percent of gross domestic product (GDP) – eight times more than the previous government's target.

However, the Commission sees Italy's growth forecast as overly optimistic and has calculated that with Italy's planned spending increase, the budget deficit would breach the EU's 3.0 percent limit by 2020.

The proposed budget also reverts back from the previous government's commitment to reduce borrowing — a delicate issue for Italy.

With a debt-to-GDP ratio of 130 percent, Italy's debt level is second only to Greece within the eurozone. That is way above the recommended debt-to-GDP ratio for eurozone countries, which stands at 60 percent.

Such high debt could hinder Italy's ability to continue borrowing and be an obstacle for growth. It is also a continued risk of a new debt crisis like the one of 2011-2012, which threatened to destroy the euro.