Italy country-specific exchange traded fund popped on a relief rebound and pared some of its losses Friday after the European market plunged in response to a questionable budget and government bond yields pushed toward a four-year high.
The iShares MSCI Italy Capped ETF (NYSEArca: EWI) was among the better performing ETFs of Friday, rising 2.1%, after plummeting 3.2% on Thursday. EWI was still down 15.1% year-to-date.
On Thursday, the European Commission formally notified Italy that its 2019 budget plans were a serious problem and required “clarification” over the “unprecedented” deviation from E.U. rules, AFP News reported.
“Italy is headed for a showdown with Brussels and I am not sure they have much to lose,” Manulife equities head David Hussey told AFP. “Given how damaging Brexit is to the EU project, a loss of Italy would be devastating and to be avoided at all costs — hence I think (that) Italy’s hand is quite strong.”
Meanwhile, bond investors have also been selling off Italian debt in response to the concerns, with yields on 10-year government debt hitting their highest since 2014.
Nevertheless, Milan’s long-suffering stock market somewhat recovered from earlier losses after E.U. finance chief Pierre Moscovici stated that Italy’s financial situation presented no danger of contagion to member countries.
The European Union’s budget chief sought to ease tensions with Rome over Italy’s budget. Moscovici told reporters on Friday that European partners want to see Italy remain “firmly in the center of Europe,” and that Italians themselves consider the euro currency “very important.”
“We don’t want to have any type of fight, we are not interested in an escalation … market operators will be reassured by constructive dialogue,” he added.
However, Italy argued that the increased spending plan was necessary to bolster growth, which will eventually push down debt, and the higher deficit will subsequently fall as a result, according to the Associated Press. Other European Union members, though, have been more outspoken about the need for Italy to rein in its deficit that is up to 2.4%, or three times higher than promised by the previous Italian government.
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