Economy minister Tria says Italy plans to cut budget deficit starting in 2020, earlier than previously said, after clash with EU * Latest: Economy minister says deficit will fall in 2020 and 2021 * Introduction: Italian cabinet to discuss budget today * Italy’s government bonds are recovering * Euro and Italian shares are rallying 7.06pm BST THE CLASH OVER ITALY’S NEW BUDGET PLANS HAVE SPARKED MEMORIES OF THE GREEK DEBT CRISIS. Withe relations between Rome and Brussels deteriorating, some investors are wondering if we could see a repeat of the drama of 2015, with another populist government promising to challenge the eurozone status quo. What ultimately saved Greece’s membership in the euro zone a few years ago was the imminent threat of default. Fearing a shock that would tip the economy into a multiyear depression and fundamentally alter many of Greece’s regional economic and financial relationships, the Syriza government opted for an orthodox approach, even though it had won both the election and the referendum by backing a political agenda that advocated doing the opposite. The hope of many investors — as well as EU officials, ECB officials and several policy makers in European capitals — is that the Italian government will perform a similar pivot, even though the immediate default risk is lower. In doing so, Rome would need to design a more comprehensive program aimed at generating high, inclusive and sustainable growth. 5.53pm BST Wall Street remains on track for yet another record close tonight. Fiona Cincotta of City Index attributes the rally, in part, to optimism over Italy. Some traders have been looking past the Brexit and tariff issues which have dominated headlines recently and have seen the iceberg that is the Italian debt situation looming ahead. Fears also seem to be subsiding on news that the Italian government has said it would cut its debt and not go on the spending binge it had previously indicated. Sources close to an Italian cabinet meeting told Corriere dell Sera that the government would bow to EU pressure to reduce its budget deficit to 2% of GDP by 2021. This was enough to convince UBS, which stated that it was going to be overweight in two year Italian bonds and that the market now looked cheap for short-dated Italian debt. The bank is still prudently cautious on longer term Italian bonds but fears over a short term default seem to be ebbing. Continue reading...
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