Talk to Lower Deficit by Italian Politicians is Sending the Euro Higher
Skerdian Meta • 2 min read
The European Commission has been refusing Italy’s budget for next year on grounds of breaching the EU rules to lower the debt and the deficit, but Italian politicians have ignored them, holding on to their plans for a 2.4% deficit. That has been one of the main reasons for the negative sentiment we have seen in financial markets in recent months, the other one being Brexit of course.
It looked like the EU and the Italian Government were going to collide head-on on this issue, which would mean that Italy might get fined or sanctioned from EU funds. But it seems like this problem has found a solution today all of a sudden after all that fight that we have seen for several weeks.
Earlier in the morning, Bloomberg posted an article saying that the main Italian politicians are going to have a meeting this afternoon at 18:30 GMT where they are going to discuss different (lower) deficit targets. The Deputy Prime Ministers Di Maio and Salvini came on a bit later confirming those rumours.
Luigi Di Maio said that deficit reduction is not a problem as long as budget measures remain the same, while Salvini added that the Government is not fixated whether the deficit is 0.1% or 0.2% lower. Well, they were concerned about that until yesterday but seems that they have had a change of heart, although this has a catch.
They might reduce the deficit for next year’s budget on paper, but if measures are the same then, by the end of next year, the deficit will accumulate and probably exceed 2.4%. But, that postpones this problem for next year, so the markets are feeling better this morning.
As a result, the sentiment feels better in financial markets this morning. Risk currencies are climbing higher, led by EUR/USD, stock markets are also higher, while safe-haven currencies are lower. I don’t know how much this will last, but for now, the sentiment is positive, although this might be a good opportunity to sell stocks or risk currencies.