Italy’s banks battered by sell-off as EU row looms

THe Italian banking sector was hit by a sharp sell- off and its debt costs surged amid fears of a massive row with the eu.

The country’s new political leaders are preparing a spending spree which economists fear is unsustainable and will breach european union rules.

It sent stock in the country’s lenders plummeting as investors bet their profits could be wiped out by the turmoil ahead.

shares in Italy’s only globally important lender, unicredit, dropped 1pc in Milan and rival Monte dei Paschi di siena shed 4.7pc. The stock market as a whole was down by 1.7pc at one stage, but closed flat.

The row has also spooked bond investors, causing them to dump Italian state debt because they fear it might never be paid back. Borrowing costs in Italy have now surged to a four-and-ahalf-year high.

And the gap between Italian and German bond prices – seen as a crucial measure of how worried investors are about Rome – widened to its highest level since 2013 when the eurozone crisis was still in full swing.

Italy plans to boost government spending by 2.7pc next year, much higher than a limit agreed with Brussels of 0.1pc.

The european commission this week warned Rome in a letter that its plans have caused serious concern.

But Italian prime minister Giuseppe conte branded his budget ‘beautiful’ and refused to back down.

critics have warned that the ensuing chaos could reignite the eurozone crisis.