The European Commission warned the Italian government on Thursday not to spend an unexpected revenue windfall on social welfare and instead channel the extra money into public accounts consolidation.
Speaking to reporters at the presentation of his annual report on the euro zone, European Monetary Affairs Commissioner Joaquin Almunia said that "unexpected revenues must be used to reduce the budget deficit and public debt".
Almunia stressed that Brussels would examine any "alternative uses" of such funds.
A tax revenue boom and a GDP revival have left Italy's centre-left government with some 10 billion euros more than it expected to have.
Economy Minister Tommaso Padoa-Schioppa has said 2.5 billion of the "mini-treasure", as it has been dubbed by the media, will go towards social welfare while the rest will be used for debt reduction.
Almunia's comments raised the hackles of leftists in Premier Romano Prodi's nine-party government, who insisted that part of the mini-treasure go towards low-income workers and pensioners.
Communist Refoundation Party chief Franco Giordano, whose party is the third biggest in the governing coalition, said that "either our country and government are sovereign or else they should be dissolved".
"The EC cannot set conditions," he added.
Meanwhile, Almunia praised Italy in his report for the "substantial structural improvement in its public accounts".
Consolidating Italy's public accounts has been a priority for Prodi and Padoa-Schioppa, who forced through an unpopular, 34.7-billion-euro budget containing extensive tax hikes and spending cuts.
They insisted the hefty manoeuvre was essential for curbing Italy's rising deficit and debt levels and meeting EU public accounts targets.
Their deficit-busting plan appears to be working.
According to the latest forecasts from national statistics bureau Istat, the budget deficit is expected to fall back below the EU's 3% cap to 2.3% this year, from 4.4% in 2006.
The bureau also forecast improvements on the public debt front.
It said Italy's debt mountain, the third biggest in the world, would drop to 105.4% of GDP this year compared to 106.8% last year.
The Italian economy also posted its best performance in six years in 2006, with growth of 1.9%.
The data appeared to confirm that Italy was emerging from a prolonged period of economic stagnation. From 2001-2005, GDP growth averaged less than 0.7% per year.
For this year, GDP growth is put at 2.2%.
