Concerns continue to mount in Italy as its country’s leaders spar with European Union officials over its latest budget proposals, prompting a war of words that is manifesting itself in the European markets with lots of red.
“In Europe, Italy is again dominating headlines as its government is at odds with the EU over its budget,” said Joseph LaGrasta, ETF Sales & Trading, at Virtu Financial. “Italy’s 10-year rose to a 4-year high and banking stocks suffered throughout. Markets across Europe are all firmly in the red with the Euro stoxx -.74%, Dax -.80%, Cac 40 -.85% and Egypt getting battered down -3.66%.”
Source: tradingeconomics.com
Per a report, European commissioner Pierre Moscovici expressed his discontent at the Italian government, saying “the Italian Government presented a government budget with a 2.4% deficit not only for this year but over the next three years to come which is a significant deviation to what was committed before. It may lead to public expenditure that makes you popular for a while, but who pays in the end? The European Commission will exert all of its powers not to impose austerity but in the defense of the Italian and European interests.”
Just recently, the Italian government sent European markets in a frenzy as comments from Claudio Borghi, who heads economic policy for the ruling Lega party, said the country would be better off if it wasn’t tied to a single currency, the euro, and operated on its own currency.
“I am truly convinced that Italy would solve most of its problems if it had its own currency,” Borghi said in a radio interview, Reuters reported.
The situation in Italy is already reminiscent of the economic crisis that sent Greece and the entire Eurozone reeling–a roller coaster ride that European Commission president Jean-Claude Juncker was happy to go on just once.
“One crisis was enough,” said Juncker. “After the toughest management of the Greece crisis, we have to do everything to avoid a new Greece–this time an Italy–crisis.”
Related: Italy Troubles Keep Pressure on Euro ETFs
Italian bonds have faced mounting pressure the last few months since the anti-establishment coalition of the right-wing League and the 5-Star Movement took over office in June. During a meeting with Italian prime minister Giuseppe Conte last month, US President Donald Trump purportedly offered Italy assistance in buying the country’s sovereign bonds next year in the face of the country’s distressed financial health, which could have ripple effect implications to the rest of the Eurozone.
Last year, Italy recorded a government debt equal to more than 130% of the country’s gross domestic product, but has struggled to keep its repayments under control. There are no specifics as to how President Trump would implement this bond purchase if the Italian government agreed.
“There’s been a lot of noise around Italy, but I think the key question to focus on is not the rounding around the budget numbers that they are predicting or forecasting, but more this perception of whether the relationship with Europe is cooperative or whether it is disruptive,” said George Saravelos, global co-head of FX research at Deutsche Bank.
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