Euro Lower on Italian Budget Worries

Euro Lower on Italian Budget Worries

Euro Lower on Italian Budget Worries

The European Commission's letter said the difference between the expected budget deficit and the one now foreseen was "unprecedented in the history" of EU budget rules, and that it means Italy would be unlikely to lower public debt as promised. It marks the start of a process which could culminate in a decision by the Commission to issue a negative opinion next week - essentially rejecting Italy's budget - and asking the Italian government to send it back with revisions.

The spread between yields on Italian and German bonds climbed to its highest level in nearly five years on Friday as a row between Rome and Brussels over the country's budget threatens to boil over.

"The combination of the tax-cutting right-wing populists and happy-to-spend left-wing populists in Rome has provided Italian bonds with a momentum that very much reminds of 2011", Ulrich Leuchtmann of Commerzbank said.

Kristian Rouz -Economists across the European Union are sounding an alarm over Italy's rising debt burden, which could potentially trigger yet another debt crisis in the single currency area.

"The economic plans of the government, while supportive of growth in the near term, do not amount to a coherent programme of reforms that will lift Italy's mediocre growth performance on a sustained basis", it said.

Tria for his part said Italy and Brussels had "different evaluations" of the situation, but added that he too looked forward to "a constructive dialogue".

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The anti-establishment 5-Star has always opposed amnesties - a frequently used policy in Italy where people or companies can avoid being pursued for tax dodging by paying a fee. The effect has been to push values down and the interest rate on government bonds, referred to as the yield, to more than three percentage points higher than safer German bonds.

"The 2.4% figure is a ceiling for all the various measures included in the budget, but it's not a given that all of them can be implemented because there could be technical difficulties", Giorgetti said.

European Union officials have long signaled it will be very hard for the commission not to reject Italy's spending plans if the government's targets remained unchanged.

It listed these strengths as Italy's large and diversified economy, substantial current account surpluses of above 2 percent of GDP, a near balanced global investment position and high wealth levels amongst Italian families. The government targets growth of 1.5 percent in 2019, followed by 1.6 percent and 1.4 percent in the following years.

The EU commission has the task of checking if budget plans stick to EU rules. "But what matters is not the sanction itself but the fact that there is a clear political conflict that the Commission can not and does not want to sweep under the carpet".

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