With Italy’s debt currently standing at a whopping 132 percent of output, financial markets appear to be increasingly nervous about the ability of the new populist government to get its finances under control.
On Friday, the so-called “yield spread” — which measures the difference in perceived risk between Italian and ultra-safe German government bonds — was wider than it has been in the past 12 months.
But in an interview with La Repubblica newspaper on Sunday, Italian finance minister Giovanni Tria insisted that the spread would narrow once Rome unveiled its budget plans.
“Italy isn’t fragile. It isn’t the sick man of Europe,” Tria said.
“The government has already said several times that budget stability will be respected. And with the new budget law in the coming weeks, these intentions will be translated into action,” the minister said, in comments made during a visit to China.
“As a result, the spread will narrow.”
Nevertheless, international rating agencies appear sceptical.
On Friday, Fitch lowered its outlook on Italy’s sovereign debt rating from “stable” to “negative”, meaning that it could be downgraded in the future.
“Following the formation of the country’s new coalition government, (Fitch) expects a degree of fiscal loosening that would leave Italy’s very high level of public debt more exposed to potential shocks,” the rating agency said in a report.
“The risk of a reversal of structural reforms negatively impacting Italy’s credit fundamentals has increased somewhat, in our view,” Fitch said.
“Fiscal and other policy risks are compounded by the relatively high degree of political uncertainty.”
On Friday, EU Economic and Monetary Affairs Commissioner Pierre Moscovici, also urged Rome to make a “significant effort” on its 2019 budget, warning he expected talks with the government to be difficult.