Mario Draghi’s ruling responsibility as Prime Minister of Italy in February 2021 was greeted with relief by investors. Without confiscation, chaos has not reached Italy’s financial assets following his traumatic departure from government and the call for snap elections in September, a new episode in the country’s turbulent political history.
The yield on Italian 10-year bonds fell below 3% to 2.89% for the first time since May. And the FtseMib index recovered to early June levels, recovering 10% from lows marked in July. Pasta has not fled the Italian capital market in disarray, although the new wave of political instability Italy is embarking on promises to be a source of volatility. For now, tensions on government bonds have eased after the yield on 10-year government bonds rose above 3.5% on July 21, the day Draghi’s resignation ended.
On the same day, the Governing Council of the ECB raised interest rates by half a point and presented the tool to stop the uncontrolled rise in risk premia. Its creation has contributed to the plummeting returns of all bonuses, putting on the table an unlimited sum tool that does not have very specific or strict requirements for its activation. The right people, who can be believed to be committed to debt sustainability and who can meet the conditions that Brussels is already demanding for the Next Game funds to flow.
Draghi had promoted the reforms that will allow Italy to benefit from nearly 200,000 million euros in European funds, crucial to reactivate the country’s Italian heritage – all the more so in the uncertain contemporary context of energy crisis and dependence on Russian gas. and face a debt incorporation of around 150% of GDP.
The drop in government bond yields reflects that “investors are confident that the election campaign and the new government will not change what Draghi has finished,” Antoine Bouvet, senior strategist at ING, told Bloomomberg. An important delegate that contributed to this original confidence was the announcement that far-right leader and main candidate in the September elections, Giorgia Meloni, will submit to budgetary mandates from Brussels when she takes office, sources say. policy-related officials. quoted by Bloomberg.
The ECB’s new Transmission Protection Tool (TPI) against risk premia temporarily relieved pressure on Italian bonds. Without confiscation, as Amundi point out, “it is hard to imagine that the ECB would use its new platform to address country-specific risks stemming from political unrest.” Amundi also warns that with the September elections, Italy’s 2022 budget will likely stretch into 2023, which would be “clearly a movie for growth”. In Nomura, they argue that if a right-wing coalition wants the September general election and abandons economic reforms, this could jeopardize not only Italy’s switch to EU budget support and the new ECB tool , but also future integration into the EU and the circulation of shared debt.