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European stocks drop as trouble brews between Rome and Brussels

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European stocks drop as trouble brews between Rome and Brussels
A "debt clock" screen displaying Italy's public debt in 2018. Photo: FILIPPO MONTEFORTE / AFP
13:20 CEST+02:00
"Italy is once again becoming a problem for the eurozone," analysts said on Tuesday as a fresh political row brews over Italy's budget deficit.

European equities slid Tuesday as investors tracked a brewing political fight between Brussels and Rome, and continued to digest the outcome of the region's parliamentary elections, dealers said.

Milan's stock market was the worst performer in Europe, sinking by 1.2 percent as Italian debt concerns returned to the fore.

READ ALSO: Italy's budget battle with Brussels: What you need to know

"Italy is once again becoming a problem for the eurozone," noted analyst Konstantinos Anthis at trading firm ADSS.

However, losses were capped elsewhere after a much-feared surge in populist groups largely failed to materialise in European Parliament elections.

"European stock markets are in the red as Italian government bond yields have ticked up over a fear for a political fight between Rome and Brussels,” said analyst David Madden at CMC Markets UK.

"The EU has warned the Italian government they could be fined... for failing to curb their debt levels, and Italy's joint deputy prime minister Matteo Salvini declared he will use 'all his energies' to fight the EU's rules."

Matteo Salvini. Photo: AFP

Salvini said on Tuesday he expected Brussels to slap Rome with a three billion euro fine over the country's rising debt and structural deficit levels.

"At a time when youth unemployment touches 50 percent in some regions... someone in Brussels is demanding, under the old rules, a fine of three billion euros," he told RTL 102.5 radio.

“All my energy will go into changing these rules from the past," said Salvini, who has been emboldened after his far-right League party won more than a third of the vote in Sunday's European Parliament elections in Italy.

The European Commission is expected to start disciplinary steps against Italy on June 5 by opening an excessive deficit procedure which could hand Italy a fine of up to 0.2 percent of the nation's GDP.

Italy's public debt is a big problem, sitting at 132.2 percent of the country's GDP in 2018 - way above the 60 percent EU ceiling - and expected to hit a record high in 219.

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