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New investor confidence boosts Italian economy

Interest on Italian and Spanish debt fell to record low on Monday, while Portugal's continued to drop, as investor concerns about the eurozone's former laggards eased.

New investor confidence boosts Italian economy
Borrowing costs for southern European countries have fallen since the European Central Bank brought in unprecedented measures in June. Money photo: Shutterstock

Borrowing costs for southern European countries have fallen since the European Central Bank brought in unprecedented measures in June to help boost weak inflation in the bloc.

Investors have also been cheered by upbeat data, with Italy's borrowing costs touching a new low of 2.666 percent, down from 2.714 percent.

"The fact that these rates continue to decline and there is no reversal shows that nobody sees issues that are likely to push yields higher," said Patrick Jacq, a bond strategist at BNP Paribas.

The improving sentiment marks a sharp turnaround from recent years when investors feared Italy and Spain could join Greece and Portugal in needing an international bailout.

Sentiment towards Portugal has also improved in recent weeks after its credit rating was upgraded by Moody's ratings agency thanks to its improving public finances.

"The market accepts that the country is moving away from a critical situation," said Jacq.

Italians too are becoming more positive about their economy, as a report published last week found consumer confidence up in the second quarter of 2014. Italy still however has a long way to go, registering the fourth-lowest consumer confidence score in Europe.

READ MORE: Italians more confident about money matters

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COVID-19

Court turns down AfD-led challenge to Germany’s spending in pandemic

The German Constitutional Court rejected challenges Tuesday to Berlin's participation in the European Union's coronavirus recovery fund, but expressed some reservations about the massive package.

Court turns down AfD-led challenge to Germany's spending in pandemic

Germany last year ratified the €750-billion ($790-billion) fund, which offers loans and grants to EU countries hit hardest by the pandemic.

The court in Karlsruhe ruled on two challenges, one submitted by a former founder of the far-right AfD party, and the other by a businessman.

They argued the fund could ultimately lead to Germany, Europe’s biggest economy, having to take on the debts of other EU member states on a permanent basis.

But the Constitutional Court judges ruled the EU measure does not violate Germany’s Basic Law, which forbids the government from sharing other countries’ debts.

READ ALSO: Germany plans return to debt-limit rules in 2023

The judgement noted the government had stressed that the plan was “intended to be a one-time instrument in reaction to an unprecedented crisis”.

It also noted that the German parliament retains “sufficient influence in the decision-making process as to how the funds provided will be used”.

The judges, who ruled six to one against the challenges, did however express some reservations.

They questioned whether paying out such a large amount over the planned period – until 2026 – could really be considered “an exceptional measure” to fight the pandemic.

At least 37 percent of the funds are aimed at achieving climate targets, the judges said, noting it was hard to see a link between combating global warming and the pandemic.

READ ALSO: Germany to fast-track disputed €200 billion energy fund

They also warned against any permanent mechanism that could lead to EU members taking on joint liability over the long term.

Berenberg Bank economist Holger Schmieding said the ruling had “raised serious doubts whether the joint issuance to finance the fund is in line with” EU treaties.

“The German court — once again — emphasised German limits for EU fiscal integration,” he said.

The court had already thrown out a legal challenge, in April 2021, that had initially stopped Berlin from ratifying the financial package.

Along with French President Emmanuel Macron, then chancellor Angela Merkel sketched out the fund in 2020, which eventually was agreed by the EU’s 27 members in December.

The first funds were disbursed in summer 2021, with the most given to Italy and Spain, both hit hard by the pandemic.

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