March 8, 2021

Stress in Italy with the risk premium at 283 points

Stress in Italy with the risk premium at 283 points


Ángel Gómez FuentesÁngel Gómez Fuentes
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Correspondent in RomeUpdated:

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The Italian government has made a great informative display to explain the details of the State budget for 2019, approved on Thursday, with the intention of reassuring many Italians and appeasing the markets, given the enormous misgivings that it has aroused in important sectors inside and outside the country. The behavior of the markets was expected with great interest on Monday, after the heavy losses recorded last Friday, with the banks plummeting. The reality is that the alarm continues. The Milan Stock Exchange, the worst in Europe on Monday, closed negative (-0.49), with serious losses in banks and the risk premium flying up to 283 points (the Spanish closed at 106.40), approaching dangerously at the psychological level of 300 points.

The nervousness has been heightened by the statements of the European Commissioner for Economic Affairs, Pierre Moscovici, who has reiterated that the deficit in the budgets of 2.4% of GDP – three times more than expected by the previous government of Paolo Gentiloni – It places outside the European parameters, taking into account the stratospheric Italian deficit: two trillion three hundred billion euros, which represents 132.5% of GDP. In addition to the opposite position of Brussels, which sees in the budgets an open challenge from the Italian government to the EU, the nervousness spread on Monday before the surprise announcement of the anticipated return to Rome of the Economy Minister, Giovanni Tria, who will not attend this Tuesday at the Ecofin meeting in Luxembourg. To her Eurogroup colleagues, Tria explained that they should not worry and that they can be "calm", because the Italian public debt will fall, something that no European Minister of Economy believes. Skepticism has its origins in the traditional Italian breach of their accounts. Therefore, it is believed that the 2.4% deficit announced for each of the next three years could be increased by a few tenths and approaching 3%.

"Dangerous game"

The "Financial Times", the first economic newspaper read by investors around the world, has commented that the decision to raise the deficit to 2.4%, is "like sticking your finger in the eye of European partners", adding that if Minister Giovanni Tria were to resign, the situation could become "explosive". Professor Tria threatened to resign, because he promised the EU not to exceed the deficit by 1.6%. But the criterion of the vice presidents of the governments, Matteo Salvini, minister of the Interior and leader of the League, and Luigi Di Maio, leader of the 5 Star Movement, who need expansive budgets, with an excessive expenditure to be able to face their electoral promises. In order to avoid an immediate dramatic situation in the Italian finances, the President of the Republic, Sergio Mattarella, asked Giovanni Tria to continue as head of the Economy. Mattarella has publicly warned that attention should be paid not to increase public debt because it means going against the interests of citizens.

The vast majority of commentators in Italy agree with the Financial Times view, which sees a "dangerous game" by Italian populist leaders, adding that "fiscal irresponsibility and defiance could aggravate Rome's problems."

Faced with criticism, the vice president of the government, Minister of Labor and Economic Development, Luigi Di Maio, leader of the 5-Star Movement, defends himself by attacking the media, which he accuses of making "terrorism over the risk premium".

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