In October, Italy’s coalition Government made up of the Five Star Movement and Lega put forward a draft budget that covered the majority of the parties’ electoral pledges. This included putting a stop to a raise in retirement age and a giving a basic income for the unemployed.
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This budget would have taken Italy’s deficit to 2.4% of GDP which is higher than the previous administrations budget but still below the 3% EU limit.
Despite this, the European Commission rejected the budget. The European Commission believe Rome’s growth forecast is very optimistic and that a more realistic deficit to GDP ratio would be in excess of the 3% limit.
Italy have since been threatened with sanctions and have agreed to draw up a new, less expensive budget.
The real problem is not necessarily annual deficit but more cumulative debt. This currently sits at around 133% of GDP at €2.6tn, the only country worse than this figure within the bloc is Greece. This could seriously hit the Eurozone and justifies the Commission's need to balance Italy’s books quickly.
If it were not for the debacle that is Brexit I feel the pound would be faring well against the euro.
Yesterday saw the most influential data release of the week for the Eurozone, Consumer Price Index (CPI) data. There was a small decline by 0.1%, both year on year and month on month. This keeps in line with the European Central Bank’s desire to keep inflation just below 2% which was deemed positive for the Eurozone.
The rest of the week is quiet with Construction data due tomorrow and Consumer Confidence data on Friday. I would not expect these releases to have a big impact on euro value.
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