The separatists Salvini and Le Pen are at the "bunker of Brussels"

The separatists Salvini and Le Pen are at the

The British pound and the Chinese Yuan also lost ground.

Rome is defying Brussels and has resolved to maintain a 2,4% budget deficit, which is three times higher than the commitment taken by the previous government.

Rome's defiance is shaking markets.

Simon Derrick, chief currency strategist at BNY Mellon said that on the pretext of present degrees of stress in the Italian markets, what remains to be answered yet is how much the Bund/BTP permit openings can blow out and how this could be construed back into the FX market.

A slump in Italian assets deepened after a tug-of-war between the government and the European Union (EU) over its budget intensified.

In a letter to Italy's Economy Minister Giovanni Tria, the European Commission estimates that in 2019 Italy's structural deficit, which excludes one-offs and business cycle effects, would rise by 0.8% of GDP.

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Another cabinet minister with well-known anti-EU tendencies, meanwhile, felt it necessary to insist that there was "no chance" of Italy defaulting on any of the country's 2.3 trillion euros worth of debt.

The original promise to triple the previous government's deficit target for the next three years to 2.4 per cent of GDP each year would have made it very hard for Rome to reduce its 130 per cent debt/GDP ratio each year, as required under the EU's budget rules.

"Italian Deputy PM Salvini yesterday met with far-right former French presidential candidate Marie Le Pen, where the two publicly agreed that "dancing-man" Juncker is the "real enemy" of Europe: perhaps that's why the guy was shuffling from side to side in public, to make himself a harder target for populists?"

"We're not fighting against Europe but against the European Union that has become a totalitarian system", she said.

"The Italian situation is an excuse for some investors who had been expecting a rebound in the last few weeks of the year as recent data out of Europe has hardly been supportive", State Street Global Markets head of macro strategy Timothy Graf said.

Italy's expansionary multi-year budget plan published late on Thursday may backfire on the populist government, according to several analysts who see a risk of rising borrowing costs, a bruising battle with Brussels and ratings downgrades.

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