Italy: Market pressure on Italy likely to return in September
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Finance Minister Giovanni Tria's comments have calmed markets but we think it is too soon to declare the Italy crisis over just yet. Market pressure is likely to return in September when the government publishes its budget proposal.
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The Italian government will have to walk a fine line to placate both the EU and Italian voters.
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Spreads continue to tighten, as no news is ‘good' news for the Italian market. However, we think markets are a bit complacent, as we still need to see more evidence that Italy is committed to following EU budget lines.
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An Italy debt risk premium of a few big figures is set to stick to EUR crosses until a clearer verdict on fiscal sustainability can be made.
After three weeks of turmoil following the appointment of a Five Star-League led government, market sentiment on Italy has calmed. Here we take a quick recap of the latest developments and outline what to expect.
A rollercoaster ride...
Following the appointment by President Sergio Mattarella, the new Italian government secured confidence votes in both chambers of parliament without a hurdle. Meanwhile, markets were keenly listening to remarks by Prime Minister Giuseppe Conte, who promised in his maiden speech on 5 June that his government would push through populist measures ranging from a ‘citizen's income' to tax cuts and curbs on immigration. Many investors had hoped for more conciliatory remarks on spending plans and subsequently took fright. This resulted in a renewed sell-off in Italian government debt (see chart below).
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