Tuesday, 25 January 2022

Italy seeks to reassure markets over budget

ROME: Italy’s new anti-establishment government sought to reassure financial markets about its upcoming budget on Sunday amid increasing concern Rome could breach EU spending limits as it comes under pressure to fulfil its anti-austerity electoral promises.

With Italy’s debt currently standing at a whopping 132 percent of output, financial markets appear to be increasingly nervous about the ability of the new populist government to get its finances under control.

The so-called “yield spread” – which measures the difference in perceived risk between Italian and ultra-safe German government bonds — was wider than it has been in the past 12 months.

But in an interview with La Repubblica newspaper on Sunday, Italian finance minister Giovanni Tria insisted that the spread would narrow once Rome unveiled its budget plans.

“Italy isn’t fragile. It isn’t the sick man of Europe,” Tria said.

“The government has already said several times that budget stability will be respected. And with the new budget law in the coming weeks, these intentions will be translated into action,” the minister said, in comments made during a visit to China.

“As a result, the spread will narrow.”

Nevertheless, international rating agencies appear sceptical.

On Friday, Fitch lowered its outlook on Italy’s sovereign debt rating from “stable” to “negative”, meaning that it could be downgraded in the future.

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