The Italian draft budget that was approved by the government last night and Aberdeen Standard Investments Senior Investment Manager Patrick O’Donnell commented:
“It seems that the Italian government is sticking to its guns. They are intent on keeping the 2019 deficit target at 2.4% and the main electoral promises of Lega and the Five Star Movement. All the signs suggest that the European Commission will ask for revisions but there’s little to suggest that the government will relent. A messy clash is almost inevitable now.
“If anything is going to force the government into a climb down then it is financial markets. Markets expect ratings agencies to downgrade Italy to one notch away from sub investment grade at the end of the month, and there’s also a good chance that they will post a negative outlook for Italy. If this happens then we’ll see more selling in Italian bond markets. Given the size of Italy’s bond market – it’s the third largest government bond market in the developed world – then this will likely enflame an already tense situation.”