The stalemate in Italy between the Italian Government and the European Commission continues despite some reports that Italy could soften its stance on its proposed 2019 budget. The deputy Prime Minster Matteo Salvini has signalled that Italy may be prepared to lower its deficit budget from 2.4% next year to 2.2%. However no formal offer from Italy has been made and it has since been reported that it will stick with its current proposals.
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Some commentators have suggested that Italy is a bigger threat to the EU than Brexit because of the possibility of another financial crisis. Italian debt is running at over €2 trillion and 131% of GDP which is the second highest behind Greece. This is why this issue is so serious for the EU and also for the euro. The EU also doesn’t want to signal to other European economies that it is ok to start increasing spending having still not fully recovered from the financial crisis of 2008.
Whilst the political uncertainty in Italy remains, consumer confidence in Italy has been dropping and fell this week for the fifth month running. Business confidence has also been falling which doesn’t bode well for future growth in the Italian economy and the euro. Until resolved the euro is likely to struggle to make gains.
Whilst the EU may have agreed the Brexit withdrawal agreement and political declaration there remains a hugely uncertain and volatile period ahead of the UK parliamentary vote on the terms of the deal. Clients looking to sell euros continue to see an excellent opportunity to convert into pounds, although there is likely to be major change in two week's time.
As an aside, the European Court of Justice (ECJ) started the case yesterday for the prospect of reversing the Article 50 process of the Lisbon Treaty. Any developments here could have an important political impact on the GBP EUR pairing. The ECJ are expected to rule on whether Brexit is reversible on Tuesday 4th December.
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