Italy deficit rattles markets in Europe

Plans by Italy's new populist government to loosen the budgetary belt a few notches roiled markets in Europe.

Italy deficit rattles markets in Europe
File photo of the Milan Stock Exchange. Photo: GIUSEPPE CACACE / AFP
With the spending plans putting the Italian government on a collision course with the European Commission, Milan took the brunt of the blow in equity markets, dropping by more than 4.6 percent at one point and ending the session 3.7 percent lower.
Thursday's budget deal that calls for a 2.4 percent deficit for the next three years came after warnings from the EU to rein in spending and it vastly exceeds the 0.8 percent deficit foreseen by the previous, center-left government.
“The Italian budget continued to cast a shadow over the markets on Friday, setting up a rocky end to a rocky month,” noted Connor Campbell, financial analyst at Spreadex trading group.
“Investors are distancing themselves from Italian bonds and stocks, and risk-off sentiment is spreading across Europe,” said market analyst David Madden at CMC Markets UK.
“The severe sell-off in European financial stocks is reminiscent of the eurozone debt crisis,” he added.
The trading of shares in some Italian banks was briefly suspended amid heavy price falls, with Banco BPM leading the way down with a drop of 9.4 percent.
The top two Italian banks, UniCredit and Intesa Sanpaolo, lost 6.7 and 8.3 percent respectively.
Shares prices of major European banks outside Italy also slumped, with French lender Credit Agricole down 4.4 percent, Deutsche Bank sliding 3.8 percent and Barclays losing 2.8 percent. 
Meanwhile, the yield on Italian government bonds jumped and the euro also dropped heavily against the dollar.
Italian government bonds “have unsurprisingly been under pressure” said analysts at UniCredit in a note to clients.
The spending plan “creates several important challenges, from a confrontation with the EC to the possibility of a downgrade of the sovereign credit rating,” they said, adding that volatility in Italian bond prices was likely to continue, especially as the European Central Bank winds down expanding its purchases of government bonds.


Sweden boosts spending on civil defence in spring budget

Sweden is to channel a further 800 million kronor to local government and other organisations to bolster Sweden's civil defence capabilities, the country's finance minister has announced.

Sweden boosts spending on civil defence in spring budget

The new funding, which will go to municipalities, regional government, and other organisations, was announced of part of the country’s spring budget, announced on Tuesday. 

“This will strengthen our ability to resist in both war and peace,” Sweden’s finance minister, Mikael Damberg, said in a press conference. “If the worst happens, it’s important that there is physical protection for the population.” 

The government is channelling 91m kronor towards renovating Sweden’s 65,000 bomb shelters, and will also fund the repair the country’s network of emergency sirens, known as Hesa Fredrik, or Hoarse Fredrik, many of which are currently out of order. 

A bomb shelter in Stockholm. Sweden’s government is spending 800m kronor in its spring budget to boost civil defence. Photo: Anders Wiklund/ TT

Sweden’s Social Democrats are currently ruling on the alternative budget put together by the right-wing opposition, making this spring budget, which makes changes to the autumn budget, unusually important. 

The budget includes extra spending of some 31.4 billion kronor (€299m), with 500m kronor going to extra spending on healthcare,  and 10.3 billion kronor going towards supporting Ukrainian refugees, of which nine billion will come from the aid budget. 

The spring budget also includes the so called “pension guarantee bonus”, or garantitillägg, which will see four billion kronor (€390m) going to those with the lowest pensions. 

The bonus, which was the price the Left Party demanded for letting Magdalena Andersson take her place as prime minister, risks being voted down by the right-wing parties in the parliament.