Red Flags Over Italy's Refusal To Budge On Budget

Italy's populist government was defiant Wednesday over its refusal to revise its big-spending budget for Brussels, despite warnings from analysts, the market and the International Monetary Fund.

Rome, (UrduPoint / Pakistan Point News - 14th Nov, 2018 ) :Italy's populist government was defiant Wednesday over its refusal to revise its big-spending budget for Brussels, despite warnings from analysts, the market and the International Monetary Fund.

"The budgets Brussels has applauded... have not helped Italy. We're doing the opposite," insisted Deputy Prime Minister Matteo Salvini after Rome told the European Commission it would not give an inch.

The Milan stock exchange slumped 1.42 percent mid-morning as the familiar fear that stress in Italy could spread to other European countries returned to haunt the markets.

The "spread" -- the difference between yields on 10-year Italian government debt compared with those in Germany -- reached 312 basis points Wednesday, up from 304 at the close on Tuesday.

It has more than doubled since May, when negotiations to form the coalition government in Rome began.

"Investors are right to be worried," said Maartje Wijffelaars, Rabobank economist on Italy.

"Given Italy's high debt level and weak growth potential, it cannot afford the current expensive budget with limited (long-term) economic gains," she said.

"Another reason to be worried is that the deteriorating relationship between the EC and Rome will likely make other Eurozone Member States less willing to help Italy out (financially) if at some point (it is) necessary.

"And at the same time, it makes it less likely that Italy will cave in or maybe even ask for such support in time, i.e. before the situation spirals out of control," she told AFP.