The main event this week as far as the Eurozone is concerned, apart from Brexit of course, is the ECB’s monetary policy decision and press conference on Thursday afternoon. It is Italy that has taken the bulk of the headlines this week too, with their debt reaching 130% of GDP and refusing to cut future spending.
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Despite rising debt and fears over Italy’s future stability, earlier this week Italian Prime Minster Giuseppe Conte defended their budget for next year and claimed that their budget deficit will not rise as sharply as the European Commission are predicting. However since his comments, the European Commission, who are responsible for the day to day management of the EU, have rejected Italy’s 2019 budget proposal and will ask Rome to put a new budget forward within the next three weeks.
This is the first time that the commission have ever asked a country to submit a revised budget, so this could create further volatility in Italy and the EU’s relationship. Couple this with reports of a potential all UK encompassing backstop over the Irish border issue and there could be some excellent opportunities to take advantage of for euro buyers.
This topic brings the ECB interest rate decision tomorrow into focus, with fears that Italy’s dependence on borrowing from the Central Bank could become exposed, once cheap money is not so easy to come by after the QE program is brought to a halt and interest rates begin to rise. Italy is set to be the key topic debated during the press conference tomorrow so any clients with euro exposure should keep a close eye on events as they unfold; as we could see some euro volatility.
The expectation for tomorrow’s meeting is for interest rates to remain on hold and for the ECB to maintain their stance on completely unwinding their asset purchasing programme by the end of this year.
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