Italy

Brussels has rejected Italy’s draft budget in an unprecedented move that threatens to deepen rifts between the European Commission and the populist government in Rome, the Financial Times reported. Valdis Dombrovskis, the commission’s vice-president responsible for the euro, said Brussels had “no alternative” but to demand changes, after Rome defied warnings that its plans for a wider deficit would smash EU fiscal rules and flout the country’s previous commitments. The move is the first time Brussels has refused to endorse an EU member state’s draft budget.

The price of Italian government debt has risen after the country’s government rebuffed a rebuke from Brussels over its spending plans but pledged not to expand the country’s deficit further after next year, the Financial Times reported. The yield on 10-year Italian government bonds dipped by 5 basis points to 3.41 per cent, extending a fall of 12 bps prior to the release of the statement. It was briefly down almost 30 bps just after the opening of trade. Its spread over the equivalent German Bund - a widely watched indicator of eurozone political tension - fell by 7 bps, to 293 bps.

Italy’s Banca Monte dei Paschi di Siena has been sounding out investors to find potential buyers for new debt, bracing itself for the possibility it may need to take the expensive step if ordered to by regulators, the Financial Times reported. Managers at the lender met with investors in London earlier this month, in meetings arranged by JPMorgan, to update them on its progress just over a year after the Italian government rescued the world’s oldest bank.

Italian bonds and stocks dropped for a third day after the European Union ramped up criticism of the populist government’s budget draft, Bloomberg News reported. The nation’s 10-year yield spread over Germany, a key barometer for investor risk, touched the highest in more than five years following a letter from the European Commission to Rome that said its spending plans were excessive. The body still needs to give its official verdict on the budget, while S&P Global Ratings and Moody’s Investors Service could choose to cut the nation’s credit ranking before the end of the month.

The leaders of Italy’s populist coalition government said they had no intention of leaving the euro but will stick with spending plans that have triggered both a credit rating downgrade and sharp criticism from Brussels, the Financial Times reported. Both Luigi Di Maio, leader of the anti-establishment Five Star party, and his coalition partner Matteo Salvini, leader of the anti-immigration League party, said they remained committed to Italy staying within the single currency.

Italy’s new budget plan has landed with a thud on desks in Brussels. The proposals mark a big change, of course, from the populist coalition in Rome, which has thrown out the previous administration’s commitment to reduce the budget deficit. Instead, prime minister Guiseppe Conte’s government, prodded by the election pledges of the Five Star Movement and the League, is to raise spending, saying this will stimulate growth, the Financial Times reported.

A court in Rome has accepted a filing by troubled Italian builder Astaldi for protection from creditors, the company said on Wednesday, confirming what sources had said. Astaldi, hit by delays to plans to sell a bridge in Turkey, filed for court protection from creditors in September to allow it to continue business while restructuring its debt, Reuters reported. “The court of Rome has admitted the company to the creditor protection procedure,” Astaldi said in a statement. The court has set Dec.

A downgrade of Italy’s credit rating by Moody’s Investors Service looks like a done deal in the coming weeks, possibly as early as October, The Wall Street Journal reported. The move is so widely expected that analysts say it could spark a short-term relief rally in Italian government bonds, depending on the rating agency’s accompanying explanation. Even so, a downgrade would reflect increasing concern that Italy’s already elevated debt could rise even further. Moody’s has extended its review period on Italy to get clarity on the budget.

Forget slap-downs from European officials and the soaring risk premium to Berlin, this is what should keep populists in Rome awake at night: Bond yields have already jumped to the point where Italy’s $2.7 trillion debt load will expand faster than the economy is projected to grow, Bloomberg News reported. The nation’s weighted-average yield needs to drop to about 2.63 percent from 3.21 percent for it to exit the danger zone, Richard McGuire, head of rates strategy at Rabobank, told asset managers in meetings in Madrid last week.

Separating the signal from the noise is not always easy, especially in Italy. However, this time the signal is loud and clear: Italy is going for fiscal loosening. It’s the wrong approach for several reasons, the Financial Times reported in a commentary. If the aim is to tackle the country’s high debt through faster economic growth, the old-style stimulus that is being proposed will not work. It generates only a temporary boost to demand, leaving the country with an even higher debt burden and elevated borrowing costs.