Italian spreads continue to surge as political risk increases

The League (Lega) party's leader Matteo Salvini addresses the media after a meeting with Italian President Mattarella at the Quirinale Palace, in Rome, Italy, 14 May 2018. EPA-EFE/RICCARDO ANTIMIANI

Italian spreads continue to surge as political risk increases


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Italy keeps producing bad news, but none as bad as the surging cost of borrowing.

On Thursday Italian 10-year bond yields opened at with a 230-point spreads vis-à-vis the German Bund, closing the day by breaking the 260-point barrier. The yield for Italian bonds now stands at 3.036%. That is only months before the European Central Bank ends it bond-buying programme in December 2018.

In April the spread between Italian and German 10-year bonds had reached a 116-point low.

Despite resilient industrial growth – by 0,5% in June compared to May  — Italy is the only EU member state that has seen its unemployment rise by 0,2%. There are now 2.866 million unemployed in Italy, or 10,9%, which is roughly the same level as in 2012.

These numbers suggest a decreasing level of appetite for investment in the Italian economy, not least due to political risk.

Italy’s deputy prime minister Matteo Salvini said on Friday that his government intends to push through a budget with measures that could set Italy on a collision course with Brussels.

He confirmed that Italy intends to introduce massive tax cuts – slashing corporate tax to 15% — and decrease the age of retirement in the forthcoming budget in October.

 “… There will the first steps towards a flat tax and a radical overhaul of the pensions system,” Salvini said in a TV interview.

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