Last week began as a typically quiet August week in the Eurozone, however, we did see some news emerging from Italy that caught the market's eye. The recently formed coalition party primarily made up of separatist parties, the League and Five Star Movement are putting together a budget which they aim to implement next year. Finance minister, Giovanni Tria has sought to allay fears that the planned spending increases will not increase debt or lead to an exit of the Eurozone. Initially, the positive news brought some very moderate support to the euro, however, markets remained skeptical over the claims, given Italy’s debt to GDP ratio is around 130%.
Furthermore, in an interview with Bloomberg, Deputy Prime Minister, Luigi Di Maio also indicated he was willing to play hardball with EU policymakers in an effort to get his coalition government’s proposed budget pushed through. The new administration is hoping to implement a lower, flat tax rate and is hoping some flexibility will be granted by the EU with regards to a loosening of rules re: deficits to get the proposals enacted.
Moving away from Italy, the close of the week saw the euro dumped as investors weigh up the likelihood of European lenders struggling to reclaim Turkish loans in the face of the Liras collapse.