The European Commission has concluded that Italy is in breach of EU fiscal rules because of its growing debt.
It says this a situation that justifies the launch of a disciplinary procedure.
If European Union states back this assessment in the next two weeks, the EU executive could subsequently recommend starting the procedure, a move expected before a meeting of EU finance ministers early next month.
The Commission said Italy had made limited progress in addressing EU economic recommendations and backtracked on necessary structural reforms.
This "may negatively affect Italy's growth potential," the Commission said.
Italy's public debt rose from 131.4% of gross domestic product (GDP) in 2017 to 132.2% in 2018 and the Commission estimates that it will go up to 133.7% this year and to 135.2% in 2020, in breach of EU rules that say it should go down.
Meanwhile, the European Commission has warned France and Belgium over their public finances but stopped short of saying that disciplinary proceedings against the two were justified.
France, the second largest economy in the euro zone, posted a debt of 98.4% of its output last year, well above the EU's recommended ceiling of 60% of gross domestic product (GDP).
The French deficit is also expected to increase to 3.1% of GDP this year, above the EU's 3% limit.
Belgium, which has the EU's fifth highest public debt at 102% of GDP, was also told off for not having sufficiently reduced it.
However, the Commission concluded that it lacked a sufficient basis for launching a disciplinary procedure.