EU rejects Italy’s budget plan for 2019, sending bond yields higher

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Italian bond yields rose in anticipation of the decision and the benchmark 10-year yield accelerated to a session high after the announcement was made official. Bond yields move inversely to prices. Speaking to CNBC’s Joumanna Bercetche after the statement, Dombrovskis highlighted the recent “substantial increase” in Italy’s borrowing rates, saying it was a signal that lawmakers should adjust the “fiscal trajectory.”

Stocks listed on the FTSE MIB in Milan also sold off and the index closed down 0.8 percent on Tuesday afternoon. In recent months, concerns over Italy have even managed to roil U.S. markets on certain occasions.

There are fears in Brussels that Italy’s fiscal plan will derail the reduction of the country’s debt pile — which is the second largest in the euro zone, totaling 2.3 trillion euros ($2.6 trillion). Within Europe, countries are expected to not run an annual deficit greater than 3 percent of GDP. However, in Italy’s case its debts have led to Brussels requesting that Rome work toward balancing its books.

The country’s populist and partly right-wing coalition, voted in after elections in March, want the fiscal blowout in order to make good on pre-election spending pledges.

Italy’s Deputy Prime Minister Luigi Di Maio, part of the left-leaning Five Star Movement, claimed on Tuesday afternoon that the EU ruling was no surprise, but said that Italy could not continue with past policies that enforced low fiscal spending. According to Reuters, Di Maio added that the EU Commission should treat Italians and their government with respect.

2018-10-23 13:39:00

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