What's the problem with Italy's budget
Well, Rome wasn't built in a day and the new Italian Government want to make sure that have enough money to keep building the country. The problem with Italy's budget, is Italy's debt.
Italy's debt is running at $2.3 trillion. This is equivalent to 131% of Italy's Gross Domestic Product. The Eurozone has set a limit of 60% maximum debt each country is allowed to have. The average eurozone country has about 86.5% of their GDP as debt. For this year the deficit should be about 1.8% , However, on October 3 the newly elected Italian Government (from March) irritated the EU by forecasting a deficit of 2.4%. This deficit runs counter to a previous Italian's Government's promise of 0.8% in 2019. So, the deficit is going the wrong way. The Italian Government now in place has taken a combative stance with the EU and is determined to meet it's Government promises through extra spending resulting in a larger deficit.
What's happens next?
Italy's draft Italian budget will be recieved by the EU today. If the EU really hate it, they may ask for another, revised budget, to be submitted in a few weeks time. Then , on December 3 the 19 eurozone finance ministers will give their opinion based on on the commission's recommendation.
Will Italy get away with submitting their 2.4% deficit?
Possibly. France had a public deficit above 3% for over 9 years and escaped the stick. Ok, Brussels became angry with France, but that was as far as it went. Similarly, Spain and Portugal avoided fines in 2016 with public deficits over the limits.
However, if the debt starts to look unwieldy investors could start to retreat away from Italian debt, sending the country's borrowing rates soaring. So, there are interesting times ahead and lots of potential for EUR volatility on the ebbs and flows of this story.
Watch for the reaction and allow the latest news to guide your sentiment analysis for the EUR.
