Will the Italian government give in to the European Commission?
In the thick of the battle with the European Commission, the Italian government has mentioned on the 26th of October the possibility of reducing the 2019 deficit target from its initial plan. Indeed, tensions between the Italian and the European Commission have been rising since the Commission re-tabled on October 23rd the Italian budget plan providing for a deficit of 2.4%, largely above the targets presented by the previous government which was 0.8% of GDP. Without revision of the budget plan, the government is subject to disciplinary procedure from the Commission. “If during the negotiations (with Brussels), the deficit should decrease a little- for us, this is not significant” said Mr. Di Maio, leader of the 5-star Movement, one of the two parties of the ruling coalition in Rome with the League. Following these declarations, both Italian government 10-year yields and 2-year yields decreased significantly (respectively by 11 and 29 basis points from 26th October to 4th December).
Italian and German Governments Bond Yields
Thomas Lorans, Economist
Sources: Beyond Ratings, Datastream