Italian Prime Minister Giorgia Meloni needs to win a confidence vote on Thursday to avoid further bond-market tensions, according to a Citigroup Inc. analyst.
“At times of market turbulence, vulnerabilities increase,” Giada Giani, senior European economist at Citi, said in an interview on Wednesday. “If there were to be an accident politically, or a loss in the confidence vote, and potentially a snap election in Italy as well, that would obviously reverberate more negatively also on markets as a risk event.”
The ballot in Italy’s lower house on Meloni’s flagship electoral reform bill is scheduled for around midday, capping a months-long process during which her government was jolted by a surprise defeat in the same chamber in July. Government whips have so far managed to restore discipline, winning three votes of confidence earlier this week.
Giani also said the current widening of the spread between Italian 10-year government bonds and comparable German ones, a measure of regional risk, is mainly a consequence of current political and economic woes in Paris.
“We think this is mostly a reflection of contagion risk out of France rather than idiosyncratic concerns around the Italian level of debt,” Giani said. She added that one danger could stem from French fiscal problems making further European integration and common financial initiatives less likely, thus penalizing Italy.
She described the Italian government’s current fiscal plan as “conservative” and said cash borrowing needs are expected to start declining next year.
Finance Minister Giancarlo Giorgetti confirmed last week that Italy plans to get its deficit below the European Union’s 3%-of-output threshold, and forecast growth of 1% this year, or more than a previously planned 0.6%. Debt however will remain well above 130% of gross domestic output for the foreseeable future.