Italian Deputy Prime Minister Luigi di Maio yesterday reiterated that his country had no plans to leave the single currency, but it would not change its target for next year’s budget deficit, despite its rejection by the European Commission.
Di Maio, who is leader of the ruling coalition’s 5-Star Movement, also said in a interview with Radio 24 that the Italian government was monitoring the banking system, which is coming under stress from the increase in government bond yields.
“Markets are not concerned about Italy not respecting the EU budget rules. Investors are worried about false storytelling, according to which Italy wants to leave the euro and the European Union. That is not the case,” Di Maio said.
The deficit target of 2.4 percent of GDP, which Brussels says is too high, should not be changed, Di Maio said.
Financial markets have reacted negatively to the expansionary budget, with bond yields rising to multi-year highs as investors fret over Italy’s defiance of EU fiscal rules and the sustainability of its debt mountain, the second-highest in the eurozone after Greece.
The Italy-Germany bond yield spread retreated to 318 basis points from 323 late on Wednesday, its second-widest level since 2013, after Di Maio’s remarks and ahead of a meeting of the European Central Bank.
The spike in Italy’s debt costs might hurt the value of its banks’ large sovereign holdings and eat into their capital, Italian Minister of Economic Affairs Giovanni Tria said on Wednesday.
Di Maio said the government is monitoring the banking system and he is confident the spread would fall in the next few weeks.
“In the following weeks we’ll discuss our budget with the European Union and it will be possible to read out the details of our fiscal plan,” he said.
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