A Warning Sign on Italy’s Euro Membership
Investors are buying more insurance against a return to the lira. It raises questions about why the same isn’t being seen for other euro countries.
After the Brexit vote, might Italy quit the euro?
Photographer: Alberto Pizzoli/AFP/Getty Images
Italian government bond yields hit four-year highs this week, which is hardly surprising after the country’s unexpected proposal for a bigger-than-expected budget deficit. At the 10-year maturity, the widening spread to German bonds shows the anxiety around the fiscal outlook:
But we mustn’t forget the other investor concern expressed in the spread: that of the government’s ambivalence toward Italy’s euro membership and its potential “Plan B” to reintroduce the lira. It would certainly be useful to assess how markets are pricing this risk, especially given the possible contagion impact on other euro-zone countries — and the euro itself.