(Bloomberg) —Prime Minister Giuseppe Conte is seeking to mediate between the coalition partners backing Italy’s government and the European Union to ease tensions amid a standoff over the country’s proposed budget for 2019, Il Messaggero reported Sunday.
Among the proposals for compromise: up to 17 billion euros ($19.4 billion) earmarked for the so-called citizens income program and for reform of the pension system could be placed in a separate fund as a “standby,” the newspaper said, without citing anyone.
The funds would then be attributed to the relevant programs “only if the situation permits it,” Messaggero reported. Reform of the pension plan, originally targeted at a cost of 7 billion euros, could fall to 5.5 billion euros.
Conte and Finance Minister Giovanni Tria, “with tacit support” from the government’s main backers, Matteo Salvini of the League and Luigi Di Maio of the Five Star Movement, have also floated a possible “re-modulation” of the citizen’s income program — an aid plan for needy Italians.
The possible adjustments could bring Italy’s deficit to 2.3 percent, compared with the 2.4 percent in the current budget plan, Messaggero reported, citing a person working on the plan.
Θετικοί ως προς τη μη εφαρμογή του μέτρου της περικοπής των συντάξεων, εμφανίστηκαν οι εκπρόσωποι των υπουργείων Οικονομικών της Ευρωζώνης κατά τη χθεσινή συνεδρίαση του Euroworking Group, όπως ανέφερε στο ΑΠΕ-ΜΠΕ καλά πληροφορημένη πηγή της Ευρωζώνης.
Ειδικότερα, κατά τη χθεσινή συζήτηση για την Ελλάδα, το EWG ενημερώθηκε για την πρόθεση των ελληνικών αρχών να μην εφαρμόσουν την περαιτέρω περικοπή των συντάξεων κατά 1% που αποφασίστηκε το 2017 ως μέτρο «έκτακτης ανάγκης».
Η Ελλάδα, με την υποστήριξη της Ευρωπαϊκής Επιτροπής και της ΕΚΤ επιχειρηματολόγησε ότι ο στόχος πρωτογενούς πλεονάσματος ύψους 3,5% θα εκπληρωθεί χωρίς τη νέα περικοπή, η οποία εάν εφαρμοστεί θα οδηγήσει σε περισσότερη ανισότητα.
Σύμφωνα με την εν λόγω πηγή, τα κράτη-μέλη συμφώνησαν με την Ελλάδα στην ανάγκη για μέτρα ενίσχυσης της ανάπτυξης και ήταν «αρκετά θετικά» στη μη εφαρμογή της περικοπής.
Ωστόσο, δεν λήφθηκε η τελική απόφαση, καθώς κάποια κράτη-μέλη της Ευρωζώνης θα πρέπει να λάβουν πρώτα την έγκριση των κοινοβουλίων τους. Το ζήτημα θα βρίσκεται στην ατζέντα του έκτακτου Eurogroup της 19ης Νοεμβρίου.
ECB Sticks to Plan to Curb Stimulus Even on Darker Outlook
Decision comes after lackluster growth, confidence indicators
Mario Draghi holds media briefing at 2:30 p.m. in Frankfurt
By Xiaoqing Pi(Bloomberg) —
The European Central Bank still intends to cap its bond-buying by year-end and leave room for an interest-rate increase late next year, even amid mounting signs that the euro-area economy is wilting under global pressures.The Frankfurt-based institution said it will buy 15 billion euros ($17 billion) of bonds a month through December, with a final decision to end the program contingent on incoming information. Policy makers reiterated that interest rates will remain at their present record lows “at least through the summer” of 2019.
ECB interest rates
minus 0.4 percent
Main refinancing rate
Marginal lending rate
Attention now turns to President Mario Draghi’s press briefing at 2:30 p.m. in Frankfurt, where he will explain the Governing Council’s decision.
The euro was barely moved by the statement, trading up 0.2 percent at $1.1411 at 1:56 p.m.
“Expect a dovish spin in the press conference,” said Christoph Rieger, Commerzbank AG’s head of fixed-rate strategy. “Deteriorating economic and market sentiment are increasing the risks to the ECB’s baseline scenario.”
A key point investors will focus on is the assessment of economic prospects. Since policy makers characterized risk to the outlook as “broadly balanced” six weeks ago, domestic momentum has weakened and uncertainty around global growth has increased.
A gauge for private-sector growth in the euro area slowed to the weakest since 2016 — a level IHS Markit said Wednesday “would historically be consistent with a bias toward loosening monetary policy.” Confidence in the region’s largest economy slid.
Draghi’s list of concerns is long. Underlying inflation continues to be muted, trade tensions between the U.S. and China are starting to take their toll on the Asian economy and export-focused companies in Europe and around the world, and risks of a disorderly Brexit are running high.
A standoff between the Italian government and the European Commission over the country’s budget probably also features prominently. The spread between Italian and German 10-year bonds is hovering near a five-year high, approaching levels seen as unsustainable for banks.
Moreover, global markets have tumbled this month. An equities rout wiped out U.S. gains for the year, and the Stoxx Europe 600 is down almost 8 percent this month.
Investors are also looking for information on whether the ECB will change its reinvestment policy once net purchases end.
Italy’s Conte Rules Out `Plan B’ on Budget as He Seeks Dialogue
Premier Giuseppe Conte speaks in Bloomberg interview in Rome
Conte says ‘we are not gamblers,’ Italy won’t leave EU or euro
By John Follain and Alessandra Migliaccio
Italian Prime Minister Giuseppe Conte insisted his government has no “Plan B” to change its budget, despite the skeptical responses of the European Commission and investors.
Conte said in a Bloomberg News interview that he was looking forward to talking with European commissioners and explaining the 2019 budget to them. He suggested that Italy has some leeway to tweak aspects of the plan, and not actual spending. But if he is asked to change the substance, “it will be difficult for me because I cannot accept that.”
“There isn’t any B plan,” Conte said in the interview in English at his Rome office on Tuesday. “I said that the deficit at 2.4 percent of GDP is the cap. I can say this will be our cap,” he said, in reference to the planned budget deficit for next year.
Italy’s populist government, a coalition of the anti-establishment Five Star Movement and the anti-migrant League, looks to be on a collision course with Brussels as its spending targets far exceed EU limits. The commission, the EU’s executive, is due to respond to Italy’s spending plans later on Tuesday, when it may opt to formally demand that Rome takes back, revises and resubmits its budget.
Financial markets are responding to Italy’s chafing at EU rules. Italian bonds fell for the fourth time in five sessions earlier on Tuesday, while the 10-year spread over similar German debt touched a five-year high during trading on Friday.
“We are ready to reduce maybe, to operate a spending review if necessary,” Conte said. “You have to consider that we are not gamblers that are betting on our kids’ future on the roulette.” Economic growth is “the best way in order to take us out of a debt trap,” he said.
Conte dismissed the prospect of the spread with German bunds reaching 400 basis points, a level that Credit Suisse AG said could put unsustainable pressure on Italy’s banking system. He also reaffirmed Italy’s commitment to the euro. “I have the evidence that part of the spread is due to the prospect of Italexit,” Conte said.
“I can assure that this executive will not accompany this country, Italy, out of Europe,” he said. “We feel very comfortable, we feel at home in Europe and we think that the euro is our currency and will be our currency, the currency of my kid, he’s 11 years old, and the currency of my grandchildren.”
ESM Chief Says Greece Doesn’t Need to Tap Markets For Two Years
By Stephanie Bodoni
(Bloomberg) — We are in close contact with the Greek debt office, have even provided technical assistance, but, in the end it’s always their decision, ESM Managing Director Klaus Regling tells reporters in Luxembourg when asked about Greece selling bonds.
“They don’t need to go to the market for 2 years,” there’s enough time, “they can see how markets develop”
Greek bond yields depend partly on what’s happening in Greece but also in other countries, also in Turkey, their neighbor
“They look at it, they are quite professional so I’m confident they are doing the right thing”
Η περίπτωση της Ιταλίας διαφέρει από την περίπτωση της Ελλάδας, δήλωσε ο επικεφαλής του ESM, Κλάους Ρέγκλινγκ, τονίζοντας ωστόσο πως υπάρχει ανησυχία για την Ιταλία λόγω των δημοσιονομικών της σχεδίων.
Όπως επισήμανε, μέχρι στιγμής υπήρξε πολύ περιορισμένη μετάσταση σε άλλες χώρες της ευρωζώνης. Κατά τον ίδιο, το κόστος χρηματοδότησης των ιταλικών τραπεζών έχει επηρεαστεί από τις υψηλότερες αποδόσεις των ιταλικών ομολόγων ενώ έχουν πληγεί και ορισμένες ελληνικές τράπεζες.
Πάντως, ο κ. Ρέγκλινγκ σημείωσε πως δεν θα πρέπει να υπάρξει πανικός για την Ιταλία.
Italy Calls for Dialogue on `Necessary’ Breach of Deficit Rules
By Kevin Costelloe and Lorenzo Totaro
Italy’s populist government promised it won’t let its budget deficit widen further than currently planned and called for dialogue with the European Union to address their differences.
In a letter to the European Commission published Monday, Finance Minister Giovanni Tria said the government is ready to act to ensure it doesn’t exceed the 2.4 percent target for 2019. He said he’s aware that his spending plans don’t comply with EU rules and he wants “constructive” talks with officials in Brussels. Prime Minister Giuseppe Conte, speaking in Rome, said the deficit target should be seen as an upper limit and it could still be narrower.
The decision to increase spending was “difficult though necessary,” Tria said in his letter. He cited slow economic growth and the “difficult economic situation the poorest segments of the Italian society are facing.”
Italian bonds rose slightly, with the spread over German 10-year yields narrowing by 6 basis points to 296. The gap reached a five-year high of 341 basis points during trading on Friday.
Tria has come under fire from officials and investors since bowing to pressure from Italy’s coalition heavyweights Matteo Salvini and Luigi Di Maio to allocate resources to their key election promises: tax cuts, more benefits spending, and a lower retirement age. The Commission expressed “serious concern” about Italy’s budget plans in a letter on Thursday.
The finance chief offered no indication that he plans to back down from the headline spending targets, paving the way for the EU to take the unprecedented step of demanding revisions. EU commissioners will discuss the letter response at a meeting in Strasbourg Tuesday, commission spokesman Margaritis Schinastold reporters in Brussels.
“While recognizing the divergence of the respective evaluations, the Italian government will remain in a constructive and fair dialogue,” Tria added. “The government is confident it can get investment and GDP growth moving again and that the recent rise in the government bond yields will be reabsorbed as the investors learn about all the details of the measures in the budget law.”
He added that after 2019 the government doesn’t intend to raise the structural budget deficit — adjusted to take account of the economic cycle and one-time items.
Prime Minister Conte signaled that Italy may not implement some of its most controversial spending plans until later next year, which could potentially lead to a narrower deficit. While the move is unlikely to appease the EU Commission, it was a sign that the government in Rome is looking at ways to reach a face-saving compromise.
“We can still reassess during the budget implementation whether to contain the target so we don’t necessarily need to reach that 2.4 percent,” Conte said. “For sure, we won’t exceed it.”
Italy Refuses to Back Down on Budget Deficit in Response to EU
By Kevin Costelloe and Lorenzo Totaro
Italy’s government refused to back down on its budget targets in its reply to European Union criticism of its 2019 spending plans.
In a letter to the European Commission, Finance Minister Giovanni Tria said the government is aware that its plan is “not in line with the applicable norms” of the EU’s stability pact. The letter said if economic growth is better than expected, the structural-deficit targets may be revised.
Tria also said that the government will intervene should the deficit and debt ratios exceed what is targeted in the budget.
Euro could revisit its year-to-date low as persistent political risks may lead Mario Draghi to refrain this week from painting a rosier picture for the bloc’s economy.Market dynamics have shifted only slightly since the European Central Bank’s last meeting, yet not in a supportive way for the common currency. Data may be suggesting the forecasts for growth are broadly on track with the Governing Council’s projections, but on the other hand subdued inflation, early signs of contagion in peripheral bonds, deadlocked Brexit negotiations and a hawkish Federal Reserve could mean the euro could test its $1.1301 mid-August low.
Draghi said he sees a “relatively vigorous” pickup in underlying euro-area inflation following the September monetary policy decision and while wage pressure is building, the pass-through to prices is yet to be seen. At a time when the market looks behind the curve when it comes to additional U.S. tightening, there may be little room for the ECB president to downplay monetary policy divergence projections at the next gathering on Oct. 25.
Price action in the spot market this month showed that the euro could benefit from a Brexit resolution. U.K. and EU officials keep kicking the can down the road however as obstacles remain, with focus now turning to a December EU summit, as volatility shows. European Council President Donald Tusk and European Commission President Jean-Claude Juncker present conclusions from the Oct. 18-19 summit to the EU Parliament this week, with the bar high for a positive surprise.
For the short-term, investors are looking closely at the performance of euro-
area peripheral bonds as the rift between Italy and the EU widens. Italy’s 10-year yield spread over Germany touched the highest in more than five years following a letter from the European Commission to Rome that said its spending plans were excessive. While resilience was the name of the game initially, Spanish bonds led the widening versus bunds on Thursday and the 10-year Portugal yield rose by 8 basis points Friday to 2.11 percent, highest since May.
The euro hit $1.1433 on Friday, flirting with a two-month low. Bloomberg’s fear-greed indicator shows bears are in firm control of price action, while a crossover in short-term moving averages suggests the latest rally for the dollar has legs to follow.
Leveraged names may be short the euro already, yet model names are seen selling technical breaks, according to two traders in Europe, who asked not to be identified because they are not authorized to speak publicly. As the market looks short gamma below $1.1400, further weakness for the common currency could mean traders will need to chase the market lower. As long as the euro stays below its 55-daily moving average, currently at $1.1579, bulls will be kept on their toes.
(Bloomberg) —Italian government bonds, stocks and debt from Europe’s other peripheral nations may rally on Monday after a ratings decision by Moody’s Investors Service removed the immediate threat of a downgrade to junk.
Moody’s cut Italy’s credit rank by one step to Baa3, its lowest investment-grade rating, on concern the government’s budget will erode its fiscal strength and stall plans for structural reform. But its decision to set the outlook for the assessment at “stable” may be enough to reassure investors after a selloff pushed yields on the nation’s 10-year bonds to the highest since 2014.
“This was the softest move possible and should be a relief for investors,” Ciaran O’Hagan, the head of euro-area rates strategy at Societe Generale, said in emailed comments. He recommended investors buy Italian government bonds after the decision. “Uncertainty has been removed. This deserves to be rewarded with a good rally.”
Notches above junk
Standard & Poor’s
Italy’s financial markets have been under pressure since the coalition government pushed for a higher-than-expected deficit in its budget, damaging investor confidence in its ability to reduce its 2.3 trillion-euro ($2.7 trillion) debt load and setting it on a collision course with European authorities. It also raised concern ratings firms would cut the nation below investment grade, triggering forced selling of government bonds.
While it leaves Italy with its lowest credit rating since the euro was formed, the downgrade fell short of investors’ worst expectations, paving the way for a relief rally. The 10-year yield touched 3.81 percent on Friday, a level last seen in 2014 when the nation was still recovering from Europe’s sovereign debt crisis. And while the securities did stage a late-day bounce to close at 3.48 percent, that’s still more than double this year’s lows and represents a premium of more than 300 basis points over benchmark German bunds.
By some measures, Italian bonds had already been trading in line with junk-rated nations.
SocGen wasn’t alone in expecting Moody’s to stick at a “stable” outlook. A one-step downgrade may see the 10-year yield spread narrow toward 250 basis points, Banco Bilbao Vizcaya Argentaria SA saidbefore the decision. Strategists at Citigroup Inc. saidthe yield gap would drop below 300 basis points in their base-case scenario of a one-notch downgrade and the removal of the negative outlook.
S&P Global Ratings, which rates Italy two notches above junk, is due to review the country on Oct. 26. Having upgraded Italy this time last year, that company “is not going to want to yoyo around,” SocGen’s O’Hagan wrote. Once its decision is out of the way, it will “eliminate one more uncertainty in the lead-up to year-end,” and that will translate into higher prices for Italian government bonds, he said.
Still, there are plenty of question marks hanging over Italy. Its swollen debt relative to its gross domestic product gives the government little financial wiggle room, while it remains under pressure due to internal disputes within the volatile coalition at home and European Union criticism of the budget.
The country’s biggest newspapers have already been running front-page stories about the bond spread as investors balk at the budget targets unveiled by the populist government. It may take further reassurances before “lo spread” — which entered Italian vernacular when the country was struggling to survive the European debt crisis — moves back out of the spotlight.
The prospect of turmoil within the ruling coalition is likely to become the dominant theme for bond investors from now on, according to Raffaele Bertoni, head of debt-capital markets at Gulf Investment Corp. in Kuwait City.
There’s a continued “risk of tension within the coalition over the budget,” Bertoni said in a Bloomberg TV interview. “Going forward, the market will focus more on the internal issues of the Italian government rather than the rating.”
The spread will tighten no more than 20 basis points on Monday, Bertoni added.
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