Heavily indebted italy’s announcement of new debt has triggered turbulence on the markets and opposition among EU partners. Over the next three years, the deficit is expected to amount to 2.4 percent of economic output.
Italian government bonds then plunged into the cellar. Signals came from the responsible EU-commission that they do not approve the plan from rome. Meanwhile, italy’s finance minister giovanni tria is standing with his back to the wall.
At around 130 percent of economic output, italy is more heavily indebted than almost any other industrialized country and has therefore been under pressure from brussels for years to reduce its debts. According to the jointly agreed so-called maastricht criteria, a maximum of 60 percent is permitted. The previous government had therefore aimed to reduce the deficit to 0.8 percent of gross domestic product next year.
According to the plans of the coalition of populist funf-sterne movement and right-wing lega, among other things, 10 billion euros will now be spent on the introduction of a burger income, and the government also plans to increase the minimum pension and an earlier retirement age.
A "flat tax" is also to be introduced gradually, initially to benefit small companies. 1.5 billion is to go into a fund to compensate small investors who lost their savings in the bank failures. Rome must submit a complete draft budget by 15 december. October to the EU commission in brussels. The latter must then examine the plan in detail.
Italian government bonds saw a sharp fall in prices on friday, while yields on government securities rose sharply. For the first time since the beginning of september, the yield on ten-year government bonds climbed back above 3 percent – by 0.22 percentage points to 3.10 percent. Observers spoke of an unusually violent price reaction for the bond market.
The new debt plans pushed the leading FTSE MIB index on the milan stock exchange into negative territory. In the meantime, the stock market barometer had fallen by as much as 4.65 percent – in percentage terms, this was the biggest daily loss since the british vote to leave the european union.
There were also heavy losses among bank stocks. In germany, too, bank securities came under pressure in view of the news from italy. Deutsche bank shares slump 2.6 percent at the end of the dax. Commerzbank shares lost 4 percent, bringing up the rear on the mdax.
Because of italy’s "explosive" national debt, clear words also came from EU economic commissioner pierre moscovici. Rome’s plans amount to a budget "that today seems beyond the limits of our rules," said the french socialist. It is unlikely that the budget can be accepted as it is, it was said in brussel. The italian daily newspaper "la repubblica" saw in the announcements of luigi di maio, matteo salvini& co even a "slap in the face" for brussel.
Within the italian government it bubbles furthermore violently. According to media reports, the non-party finance minister giovanni tria is said to have considered resignation. State president sergio mattarella is said to have prevented him from doing so. A high level of new debt combined with the resignation of the guarantor of budgetary discipline had made the country’s financial situation "unpredictable", wrote the business newspaper "il sole 24 ore".
Nevertheless, tria emerges from the negotiations as the loser. He was unable to get his way in limiting new debt to 1.6 percent. At the meeting of euro finance ministers next monday in luxembourg, there may therefore be some awkward questions for him.
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