The Italian economy is once again causing a problem for the European Union after figures published by the European Commission suggested that Italy will once again go over its spending limit. However, the EU is unlikely to put too much pressure on Italy as it fears that this could cause other members to follow suit.
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With Italy one of the biggest economies in the Eurozone arguably it has an economy that is too big to fail so it is in the longer term interest of the bloc to maintain a good relationship with Italy and not to attack them too much. With Italy’s deficit likely to hit 3.5% this year which is higher than the EU’s imposed limit of 3% then clearly the economy is under a lot of pressure at the moment.
With a change in government not that long ago the Italian Prime Minister Guiseppe Conte has proposed plans to amend the austerity measures put in place following on from the credit crunch over ten years ago. This is an attempt to curry favour with the people but this is also at the risk of damaging the economy further.
The European Commission will be reviewing the fiscal policy in Italy next month and if Italy is not complying then we could possibly see the EU take steps in trying to encourage Italy to tow the line so this could cause problems ahead for the euro.
Tomorrow morning Germany will release inflation data for year on year. The expectations are for a fall from 2.1% to 1.7% so another fall in inflation could put pressure on the European Central Bank (ECB) to keep rates on hold for the foreseeable future.
Eurozone Industrial Production data is also published tomorrow and this is also expected to see a fall so I think we could see problems for the euro tomorrow which could create some good opportunities to buy euros with pounds.
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