The coalition government is comprised of two euro-skeptic, anti-establishment parties. The Lega party has made similar comments on leaving the Eurozone before the election in March but retched down the rhetoric on the controversial issue.
Reduction of public debt?
Further muddying the waters, the new populist government prepared it first budget while observers were concerned that increased public spending will derail the reduction of public debt. However, Italy assuaged markets and proposed plans to reduce its budget deficit over the next three years.
“That the Italian government is trying to appease its EU partners can be seen as a step in the right direction and therefore justifies some euro-positive reaction,” Thu Lan Nguyen, a FX strategist at Commerzbank AG, told Reuters.
Nevertheless, the speculation over Italy’s involvement in the euro bloc has left lingering concerns over the currency’s outlook.
“When was the last time you ever heard anybody question the integrity of any other G8 currency?” CMC Markets’ chief analyst, Michael Hewson, told Reuters. “The fact that politicians feel the need to constantly reiterate this line speaks to a fundamental weakness at the heart of the single-currency area.”
For more information on the foreign exchange markets, visit our currency ETFs category.