Italy's Tria calls for "constructive dialogue" with European Union over budget

A general view of Palazzo Mezzanotte head office of the Borsa Italiana

A general view of Palazzo Mezzanotte head office of the Borsa Italiana

The euro dropped 0.5% to US$1.1467 (RM4.77), while the haven yen climbed 0.3% to 113.35 per dollar.

The British pound and the Chinese Yuan also lost ground. The Athens Stock Exchange followed, with investors scared of the political risk spreading across the Eurozone's periphery.

The yield on 10-year bonds climbed 16 basis points (bps) to 3.59% as of 12:02pm in London yesterday, after touching 3.63%, the highest since February 2014. That is 1,4% more than what the Council of Ministers asked from the newly elected government in July.

The markets have been shaken by a row between Brussels and Rome, which are at loggerheads after Italy's populist government passed a purse-busting budget last week to the annoyance of the EU. The government is expected to submit a draft budgetary plan to the European Union commission by 15 October.

While this was a significant row-back on its initial forecast of a public deficit of 2.4 percent for the next three years, the European Commission has said it is still "a significant deviation from the fiscal path recommended" by Brussels and "therefore a source of serious concern". That would be unprecedented.

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"The May date will be the end of the journey, a common sense revolution", Matteo Salvini, the head of Italy's anti-immigrant League party and deputy prime minister, said in Rome alongside France's Marine Le Pen.

"I hope no one has prejudice towards this government, or odd intentions", Salvini, who is also head of the ruling far-right League party, said in an interview with RTL 102.5 radio.

Salvini and Di Maio are trying to sustain the momentum behind their political takeover of Italy as their plans to cut taxes and ramp up benefit spending puts them on course for a collision with the European Union budget police and the investors they need to finance their plans.

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.

"We share the same idea of Europe, of agriculture, of work, of the fight against immigration", Salvini said.

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