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From our friends over at the : Irishexaminer.com
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Eamon Quinn
There is “no end in sight for Italian fiscal standoff”, a leading group of economists has said, and the cost of borrowing for the Italian state will rise to 5% by end of 2020.
Capital Economics in London said that Italian Finance Minister Giovanni Tria has made some attempt to defuse the row with Brussels over the budget plans of recently elected coalition League and Five Star Movement by saying it will move again to reducing its structural budget deficit under EU rules, in 2022. He has also said that Italy is committed to staying in the eurozone.
It comes as Eurogroup head Mario Centeno said the latest messages from Rome and the European Commission are “very positive” and he expects agreement to be reached on the blueprint.
“In all likelihood, this will be a request for the Italian government to submit a revised budget, which it would have to do within three weeks.
If the government failed to do this or submitted a budget that did not gain the commission’s approval, the matter would be referred to the European Council [made up of the leaders of the EU heads of states] for further deliberations,” Capital Economics said.
“This could be a long, drawn-out political process. Even if Italy eventually faced sanctions for flouting the EU’s budget rules, those sanctions wouldn’t come until after Italy was put back into an Excessive Deficit Procedure, which might not happen until next year,” it said. However, the economists say the commission could be forced to act faster if yields of Italian bonds were to rise again steeply.
“One thing that could cause the situation to come to a head sooner would be a sharp rise in Italian bond yields.
The government has previously said if the spread between Italian and German 10-year bond yields reached 400 basis points [from around 300s currently], it would be forced to take action to reassure markets,” it said.
“However, with Moody’s on Friday showing little inclination to push Italian government bonds into junk status, we are comfortable with our view that this will be a slow-burn issue for Italy rather than a full-blown crisis,” it said, projecting the 3.5% 10-year yield will rise to 5% by the end of 2020.
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The Benetton family has said it will fight the Italian government’s seizure of its road-toll assets in the wake of a deadly bridge collapse, in a confrontation between one of the country’s pre-eminent industrial dynasties and populist politicians demanding justice for a disaster that killed 39 people.
Investors in Atlantia, the infrastructure company controlled by the family, faced dramatic losses after the accident ignited a political firestorm. Italian officials said they started the process to revoke the company’s road concession, while the company said it would protect shareholders and bondholders.
The fingerpointing and harsh political response have thrown the Benettons into a fight to salvage their lucrative toll-road investment and protect their fortune amid rising anger in Italy.
Atlantia said the officials’ decision to start the revocation process came prematurely, “without any verification of the material causes of the accident”.
The shares pared some losses after a senior transport ministry official said the initial move to revoke the toll-road concession would be restricted to the stretch of highway in Genoa that contained the collapsed bridge.
Atlantia shares fell 21% in Milan and the bonds mostly recovered after some fell to record lows.
The Italian company has lost about €4.4bn in market value since Tuesday’s disaster.
Atlantia could get a chance to keep its concession if it quickly rebuilds the bridge, said sources. To revoke the license, the government must prove serious negligence in maintenance, “which is not going to be straightforward”, said Giorgio Ragazzi, a professor at Bergamo University.
Politicians have called for the top management of Autostrade to resign, including Atlantia CEO Giovanni Castellucci.
Bloomberg
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