Monex: Italiaanse problemen drukken op vooruitzichten euro

November 21, 2018

Hieronder volgt een commentaar in het Engels van Bart Hordijk, valuta-analist bij Monex Europe, op de afwijzing van de Italiaanse begroting door de EU. De financiële markten reageerden nauwelijks, wat overigens niet betekent dat het onderwerp van de agenda is! Dit was volgens verwachting en de meest recente voortekenen lijken er op te wijzen dat de situatie nog wel eens kan gaan verslechteren, wat dan weer nadelig is voor de vooruitzichten van de euro, stelt Hordijk.

This morning’s widely expected European Union rejection of the Italian budget didn’t kick the chair away underneath the noose-necked Italians - yet. It may seem a reprieve for now, as Italy has 6 months to show to the EC it is bringing down its debt before fines are installed. However, Italian Deputy Prime Minister Mario Salvini as recently as this morning repeated the 2.4% budget deficit “can’t be discussed”. This can be seen as further negotiation rhetoric, aimed at his domestic audience as well, however, this of course does not inspire great hopes for a quick resolution in the spat between Brussels and Rome.

The topic will likely remain with us for longer, as there are no easy compromises to make for both sides, which will put a lid on the prospects of the euro. Italy needs to find a balance between stimulating its growth-lacking economy, while it’s probably wise as well to comfort bond markets to the extend that interest levels don’t explode. Also, the new Italian government is facing domestic pressures not to crack for the whip of the Brussels hegemon. The EU on the other hand needs to find a balance between upholding the near-sacred budget rules, while simultaneously it doesn’t want to further fan anti EU sentiments in Italy by responding too harshly to the insurgent Italians. The EU then faces political pressures from its Northern member states like Germany, Netherlands and Finland to tie Italy to the rack until the country chooses to honour fiscal responsibility again.

The fact the there are no easy compromises for both parties involved are for us an indicator this conflict will continue to simmer in the background for the coming months. As the European Central Bank simultaneously is planning to slowly diminish its presence in the Eurozone bond markets, Italian bonds may face further pressure as one of their biggest “buyers of last resort” is retreating. Meanwhile, Q3 Italian growth was flat and the Purchasing Manager Indices for both the manufacturing and the services sector of the country point towards a potential growth contraction in Q4. Rising debts and a shrinking economy are not a positive omen for debt sustainability, which is eventually why Italy still remains the “soft belly of Europe”