ECB alert for increased Italian bond yields
The increased yields on Italian bonds and their large difference from the corresponding debt yields of the other Eurozone countries are still a cause for concern for the ECB which, however, has the necessary tools to bring the situation under control. This statement was made yesterday by the head of the Bank of Ireland, Gabriel Maklouf, referring to the rise in Italian bond yields after the Meloni government's decision to increase the country's budget deficit target.
In an interview he gave on the sidelines of the IMF session in Marrakesh, Mr. Maklouf referred to the rise in Italian bond yields which he attributed to “the market's view of domestic policy risks” but also “to the comparison between Italy and the other Eurozone countries”. The difference between the yields of the Italian bonds and the other countries of the Eurozone is significant as the ten-year yield of the Italian government yesterday stood at 4.677% while the yield of the corresponding German was only 2.72%. Italy has been targeted by investors due to policy choices by Prime Minister Giorgia Meloni, who first tried to tax bank profits and then moved to raise the budget deficit target. However, Italy has been a concern of the ECB for a long time. Over the past year the bank has devised a new tool to deal with a new crisis, which will enable it to control any turmoil in bond markets without stopping interest rate rises.
However, as the governor of the Bank of Croatia, Boris Vucic, pointed out in an interview with Bloomberg, Italy does not currently need the intervention of this tool as “spreads are widening, but not too much”. He added that “when you consider what the Meloni government's budget foresees, then you can say that the increase in yields was expected”. In the meantime, the Parliament of Italy yesterday approved the budget plan of the Meloni government which foresees an expansion of the deficit. Both the Lower House and the Senate gave the green light to the budget presented last month by the government, which foresees that the reduction of the deficit within the limits of the EU rules. it will not be achieved until 2026. For 2023 the draft budget foresees a deficit of 5.3% of Italian GDP when the previous target was 4.5%. For next year, after all, the deficit is predicted to fall to 4.3%, while the previous target was for 3.7%.