Robeco: Less Euroscepticism among Italian voters

Main market events

Peripheral bond spreads tightened last week, amid a broader tightening of credit spreads in the euro area. News out of Italy was mixed, with Savona expressing continued anti-euro views, while Tria was sending a more comforting message. Italian bonds have returned -2.9% year-to-date, Spanish bonds 2.7%, Portuguese bonds 2.3% and Irish bonds 0.9%.

ECB

The minutes of the June Governing Council were published this week. They highlighted the unanimity of the decision about enhancing forward guidance on policy interest rates. Guidance will be based on a specific timeframe and depend on the state of the economy. That said, over the past days some GC members discussed the meaning of “throughout the summer” for the next rate hike. 

Italy

According to a new poll, only 22.5% of Italian voters are in favor of leaving the euro area, with about two third of the respondents against the idea of holding a referendum on the subject. Interestingly, some support was even found among M5S and Lega parties. The percentage of Eurosceptic voters is clearly declining in Italy. But on Tuesday, EU affairs minister Savona stated loud and clear that Italy should be prepared to any eventuality including the exit of the euro. Damage control followed quickly on Wednesday by prominent members of the government. Deputy PM Di Maio reaffirmed that there was no Plan B for euro-exit. Another reassuring message was sent by finance Minister Tria in Brussels, stressing that Italy’s 2019 budget will focus on higher investment spending. To the extent that such investment could foster potential growth, this could be viewed as a positive development, especially as Italy is set to post the slowest growth pace among the 19-members of the euro area this year and the next. 

Greece

This week, Draghi has played down both the upholding of the waiver on Greek bonds’ eligibility as collateral for liquidity operations after August and the possibility that Greece could benefit from ECB QE bond purchases. If the waiver is not extended, the cost of funding of local banks would be significantly increased as they will have to rely on ELA funding from the Bank of Greece.  

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