Thursday

9th Jul 2020

Markets nervous as Italian government nears collapse

  • Letta called Berlusconi's move a 'crazy gesture' (Photo: cristian)

Risk of snap elections in Italy is causing jitters on financial markets, but some say investors have grown accustomed to the chaos.

The value of Italian debt hit a two-week low, while the value of 'safe haven' German bonds ticked upward when markets opened on Monday (30 September), Reuters reports.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

"There's a sense things are now spinning out of control, with potentially dangerous consequences for both Italy and the eurozone," Nicholas Spiro, head of Spiro Sovereign Strategy, a London-based consultancy, told the news agency.

Other analysts were less alarmist.

Barclays bank said investors are likely to show "low activity" and "to remain on the sideline, waiting for more clarity on possible political developments."

But it also warned that if Italy holds emergency elections which lead to another hung parliament, it could prompt a "massive liquidation" of Italian bonds.

The jitters were prompted by the collapse of Italy's ruling coalition over the weekend.

Silvio Berlusconi, the leader of the centre-right PdL party, on Saturday pulled five of his ministers from centre-left Prime Minister Enrico Letta's cabinet, citing a dispute on VAT.

Letta himself called the VAT line a "huge lie."

He also called Berlusconi's move a "crazy gesture" designed to stop him being kicked out of the senate following a conviction for tax fraud.

Letta will hold a vote of confidence in parliament on Wednesday to see if he has enough support for minority rule.

But if MPs do not endorse him, he will be forced to hold snap elections, just seven months after the last vote and not long after Italy narrowly avoided an EU bailout.

Some ministers played down the potential fallout from the latest crisis.

Economy minister Fabrizio Saccomanni told Italian daily Il Sole 24 Ore on Sunday that markets have learned to live with Italy's political chaos.

"I think the uncertainty connected to the government's instability has been to a large extent already factored in during the last few weeks," he noted.

Labour minister Enrico Giovannini also said the Italian economy is strong enough to absorb the shock.

"Political instability could threaten not so much the economic recovery we expect before year-end, rather a pick-up in growth in 2014," he told Reuters.

He added, on a note of caution, however: "This crisis is the last thing we needed."

"If instability were to persist and affect the eurozone, then international authorities could put much stronger pressure on [Italian] national authorities," he said.

EU forecasts deeper recession, amid recovery funds row

The economies of France, Italy and Spain will contract more then 10-percent this year, according to the latest forecast by the EU executive, as it urges member state governments to strike a deal on the budget and recovery package.

EU plans tougher checks on foreign takeovers

The EU and its member countries are worried that foreign powers, such as China and its state-owned companies will take advantage of the economic downturn and buy up European firms

Vestager hits back at Lufthansa bailout criticism

Commission vice-president in charge of competition Margarethe Vestager argued that companies getting large capital injections from the state during the corona crisis still have to offset their competitive advantage.

News in Brief

  1. Rushdie, Fukuyama, Rowling warn against 'intolerance'
  2. Clashes in Belgrade after new lockdown measures
  3. US passes milestone of 3m coronavirus infections
  4. France wary of any future lockdowns
  5. Lithuania bans Kremlin-linked Russia Today programmes
  6. UK nominates Liam Fox for WTO top job
  7. Italy supports Spain's Calviño for Eurogroup job
  8. France and Germany warn Israel on annexation 'consequences'

EU forecasts deeper recession, amid recovery funds row

The economies of France, Italy and Spain will contract more then 10-percent this year, according to the latest forecast by the EU executive, as it urges member state governments to strike a deal on the budget and recovery package.

Stakeholders' Highlights

  1. UNESDANext generation Europe should be green and circular
  2. Nordic Council of MinistersNEW REPORT: Eight in ten people are concerned about climate change
  3. UNESDAHow reducing sugar and calories in soft drinks makes the healthier choice the easy choice
  4. Nordic Council of MinistersGreen energy to power Nordic start after Covid-19
  5. European Sustainable Energy WeekThis year’s EU Sustainable Energy Week (EUSEW) will be held digitally!
  6. Nordic Council of MinistersNordic states are fighting to protect gender equality during corona crisis

Latest News

  1. Five ideas to reshape 'Conference on Future of Europe'
  2. EU boosts pledges to relocate minors from Greece
  3. Hydrogen strategy criticised for relying on fossil fuel gas
  4. Merkel urges EU unity to hold off economic fallout and populism
  5. The opportunistic peace
  6. EU mulls new system to check illegal pushbacks of migrants
  7. EU forecasts deeper recession, amid recovery funds row
  8. Revealed: fossil-fuel lobbying behind EU hydrogen strategy

Join EUobserver

Support quality EU news

Join us