BRUSSELS (AFP) -- The EU said Wednesday that draft budgets from Italy and seven other eurozone countries risk breaking the bloc's rules, setting up a row with Prime Minister Matteo Renzi ahead of a crucial referendum.

The European Commission said the budgets for Spain and Portugal were also problematic, just a year after the two countries became the first to officially face sanctions for public over-spending.

But the commission, the executive arm of the European Union, dropped a threat to suspend EU funds for Lisbon and Madrid.

The other countries warned by the Commission of problem budgets were Belgium, Finland, Slovenia, Cyprus and Lithuania.

The Commission said the draft budgets for the eight countries "pose a risk of non-compliance with the requirements for 2017", putting the governments under the threat of fines and frozen EU funding.

EU Economics Affairs Commissioner Pierre Moscovici tried to downplay the negative opinion against Italy, pointing to the extra costs a handling a series of earthquakes and the migration crisis.

"For Italy, a significant part of deviation is due to the costs associated with seismic activity in the country which has been very serious this year and dramatic," Moscovici told a news briefing in Brussels.

The EU "will take that into account," he added.