Ital­ian as­sets calmer on prospect of bud­get deal

Irish Independent - Business Week - - FRONT PAGE - John Ainger and Stephen Spratt

ITAL­IAN mar­kets got some respite af­ter a re­port that the govern­ment had bowed to pres­sure from the EU to trim its bud­get-deficit tar­get.

Ital­ian govern­ment bonds snapped four days of de­clines and the FTSE MIB In­dex of shares headed for the big­gest gain in more than a week af­ter the ‘Cor­riere della Sera’ news­pa­per re­ported that the govern­ment will seek to con­tain the short­fall at 2pc in 2021, down from 2.4pc.

The tar­get for 2020 will be trimmed to 2.2pc, while next year’s goal of 2.4pc will re­main, the news­pa­per said.

Mar­kets have strug­gled to find an equi­lib­rium for Ital­ian debt fol­low­ing the orig­i­nal plan out­lined last week, with 10-year yields touch­ing the high­est level in more than four years on Tues­day. The Five Star Move­ment-League coali­tion still needs to re­lease its eco­nomic-growth pro­jec­tions be­fore pre­sent­ing a draft bud­get pro­posal to the EU Com­mis­sion by Oc­to­ber 15. A num­ber of of­fi­cials have warned that the plans could be in breach of EU rules.

“The re-pro­fil­ing of the deficit path is a con­struc­tive re­sponse and sug­gests some re­duc­tion in tail risks,” said Peter Chatwell, head of Mizuho In­ter­na­tional.

“For the sake of the Ital­ian econ­omy, we hope this sig­nals that a les­son has been learned.” Italy’s 10-year yields dropped eight ba­sis points to 3.37pc by mid­day in Lon­don, nar­row­ing the yield pre­mium on the na­tion’s bonds over those of Ger­many.

Italy con­ducted a bond swap yes­ter­day, ex­chang­ing notes ma­tur­ing in 2019 and 2020 for €2.1bn of se­cu­ri­ties due in 2028.

The EU’s re­sponse to the re­vised tar­gets will still be a key hur­dle for in­vestors. The orig­i­nal plan from Rome had prompted a push-back, with the Euro­pean Com­mis­sion vice-pres­i­dent Valdis Dom­brovskis say­ing that it went “sub­stan­tially be­yond” what is al­lowed. Moody’s and S&P Global Rat­ings have Italy just two notches above junk and are due to re­view the sov­er­eign rat­ing later this month.

Fi­nance Min­is­ter Gio­vanni Tria said at an event in Rome that the govern­ment was com­mit­ted to en­sur­ing con­stant debt re­duc­tion to­ward the ob­jec­tive agreed with the EU.

Mean­while, Italy’s fledg­ling govern­ment re­ceived a boost af­ter a record $7.6bn sale of high-speed air­waves, which could help it fund some of its elec­tion prom­ises.

Euro­pean Com­mis­sion vice-pres­i­dent Valdis Dom­brovskis said Italy broke rules

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