Robeco: Ongoing conflicting messages from Italian officials

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Marktrückblick

Some Lega officials renewed their anti-euro rhetoric this week, calling for an euro exit. This does not bode well for a quiet summer.

23.07.2018 | 12:33 Uhr

Main market events

Over the past week, peripheral bond spreads have remained broadly flat. This could appear rather strange in the aftermath of the ECB initiative aiming at tackling non-performing loans in the Eurozone, by forcing banks to increase their provisions. In addition, the promise made by PM Conte to fully reimburse Italian savers that lost their money in the bail-in of local banks in 2016, could have damaged Italian spreads more. Italian bonds have returned -2.0% year-to-date, Spanish bonds 2.8%, Portuguese bonds 2.4% and Irish bonds 1.0%.
 

Spain

On Tuesday, Spanish Prime Minister Sanchez proposed a fiscal plan in Congress to reinforce the social cohesion by tackling the issue of inequality. The strategy that involves higher corporate taxes, more public spending and a higher fiscal deficit for 2018/19 is in sharp contrast with the rather conservative stance of the previous government. The additional EUR 16bn spending will be directed toward education, health, pensions and social services. To finance it, taxes on business, banks, financial transactions and polluting energy will be increased. In total, if these measures are passed in Congress, the deficit would then be lifted by 0.5 percentage point in 2018 and 2019. The more accommodative fiscal stance of this new government could be viewed in the context of a possible snap election in 2019. 

Italy

Some Lega officials renewed their anti-euro rhetoric this week, calling for an euro exit. Their messages were counter-balanced by PM Conte who affirmed that the euro is irreversible. He furthermore stressed the principle of tax progressivity for any tax reform, a position contrasting with the flat tax supported by Salviani and Di Maio. BTP volatility has been further fueled by rumors that Finance Minister Tria could be pushed out by the leaders of the two populist parties, but this rumor has been refuted by Giovanni Tria himself. This does not bode well for a quiet summer until September 27, when the Draft Budget will be presented. With this budget plan, more insight will be provided into the real fiscal posture of the populist coalition. Meanwhile, PM Conte met savers who lost their money in the bankruptcy of Banca Monte dei Paschi and some smaller Venetian banks. He promised them that they will be fully reimbursed. This, if implemented, could fuel a negative dynamics between Sovereign BTP and bank spreads.

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