The spread between Italian and German 10-year-bond yields climbs as markets assess the danger of the incoming Italian government. The widening spread between German and Italian bonds is spilling over the political sphere, with a brewing confrontation between Berlin and Rome resembling the 2015 emergence of the Syriza government in Athens.
In an interview with Handelsblatt on Tuesday, European Commission Vice-President Valdis Dombrovskis warned that Rome “should stay on course and move forward with a responsible budget policy.”
In doing so, the Commissioner echoes the warning of the leader of the European People’s Party (EPP) Manfred Weber, who warned on Monday that the emerging coalition government in Rome is “playing with fire.”
Speaking to the German media, Weber warned that Italy could trigger a new Eurozone crisis given the country’s debt-to-GDP ratio.
Underscoring Weber’s warning was a statement by Fitch Ratings on Monday, which made explicit the link between the country’s sovereign debt profile and the so-called “contract” agreed between the far-right Lega and the Five Star Movement (MS5).
Fitch warned that markets are particularly concerned by the prospect of an “easing” budget, an understatement given the stated intention to revoke pension reforms and establish a minimum guaranteed income of €780 a month; the estimated cost for the budget to be submitted this autumn will be an additional €100bn.
On Tuesday the spread fell below the 180-basis-points, following a 190-point peak on Monday as the Fitch report came out. The markets were reacting to the confirmation of a projected 1,4% growth, driven mostly by the resurgence of domestic demand.
Reactions in Italy to Weber’s criticism have been vehement. “It’s Weber who’s playing with fire: the time when Italy took orders from Berlin is over,” the League’s parliamentary whip Mara Bizzotto told the Italian News Agency ANSA. “The time when Merkel and her proconsuls in Brussels set up and knocked down Italian governments according to the interests of Germans and their banks is over,” she added.
“Let him think of Germany, and we’ll think about the good of Italy,” the leader of the League Matteo Salvini said.
In a statement of the M5S caucus at the European Parliament, the party said that Manfred Weber “missed an opportunity to keep silent,” suggesting that the emerging government is a chance to oppose austerity and the selfish management of immigration.