Italy’s New Rulers Don’t Come for Free
Borrowing costs are way beyond “fair value” because of fiscal doubts. It’s hard to see how growth can save the day.
Italy pays a real price for Five Star and the League.
Photographer: Giulio Napolitano/BloombergAfter a summer of shadowboxing over Italian fiscal policy, autumn will deliver the main event. By the end of September, finance minister Giovanni Tria is expected to finalize a medium-term budgetary plan. The entree, however, will be the 2019 Budget Law, due in October.
Over this period, rating agencies will complete their reviews of the country’s creditworthiness. Another downgrade would put Italian government bonds dangerously close to falling below investment grade, with potentially far-reaching consequences. These include forced selling by institutional investors and restrictions on their use as collateral with the European Central Bank.