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European stocks drop as trouble brews between Rome and Brussels

"Italy is once again becoming a problem for the eurozone," analysts said on Tuesday as a fresh political row brews over Italy's budget deficit.

European stocks drop as trouble brews between Rome and Brussels
A "debt clock" screen displaying Italy's public debt in 2018. Photo: FILIPPO MONTEFORTE / AFP

European equities slid Tuesday as investors tracked a brewing political fight between Brussels and Rome, and continued to digest the outcome of the region's parliamentary elections, dealers said.

Milan's stock market was the worst performer in Europe, sinking by 1.2 percent as Italian debt concerns returned to the fore.

READ ALSO: Italy's budget battle with Brussels: What you need to know

“Italy is once again becoming a problem for the eurozone,” noted analyst Konstantinos Anthis at trading firm ADSS.

However, losses were capped elsewhere after a much-feared surge in populist groups largely failed to materialise in European Parliament elections.

“European stock markets are in the red as Italian government bond yields have ticked up over a fear for a political fight between Rome and Brussels,” said analyst David Madden at CMC Markets UK.

“The EU has warned the Italian government they could be fined… for failing to curb their debt levels, and Italy's joint deputy prime minister Matteo Salvini declared he will use 'all his energies' to fight the EU's rules.”

Matteo Salvini. Photo: AFP

Salvini said on Tuesday he expected Brussels to slap Rome with a three billion euro fine over the country's rising debt and structural deficit levels.

“At a time when youth unemployment touches 50 percent in some regions… someone in Brussels is demanding, under the old rules, a fine of three billion euros,” he told RTL 102.5 radio.

“All my energy will go into changing these rules from the past,” said Salvini, who has been emboldened after his far-right League party won more than a third of the vote in Sunday's European Parliament elections in Italy.

The European Commission is expected to start disciplinary steps against Italy on June 5 by opening an excessive deficit procedure which could hand Italy a fine of up to 0.2 percent of the nation's GDP.

Italy's public debt is a big problem, sitting at 132.2 percent of the country's GDP in 2018 – way above the 60 percent EU ceiling – and expected to hit a record high in 219.

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POLITICS

Italian rivals pitch abroad in trilingual vote videos

Days after Italy's far-right leader made a multilingual appeal to foreign commentators to take her seriously, her main rival in September elections issued his own tit-for-tat video Saturday condemning her record.

Italian rivals pitch abroad in trilingual vote videos

Former prime minister Enrico Letta, leader of the centre-left Democratic Party, declared his pro-European credentials in a video in English, French and Spanish, while deriding the euroscepticism of Italy’s right-wing parties.

It echoes the trilingual video published this week by Giorgia Meloni, tipped to take power in the eurozone’s third largest economy next month, in which she sought to distance her Brothers of Italy party from its post-fascist roots.

“We will keep fighting to convince Italians to vote for us and not for them, to vote for an Italy that will be in the heart of Europe,” Letta said in English.

His party and Meloni’s are neck-and-neck in opinion polls ahead of September 25 elections, both with around 23 percent of support.

But Italy’s political system favours coalitions, and while Meloni is part of an alliance with ex-premier Silvio Berlusconi and anti-immigration leader Matteo Salvini, Letta has struggled to unite a fractured centre-left.

Speaking in French perfected in six years as a dean at Sciences Po university in Paris, Letta emphasised European solidarity, from which Italy is currently benefiting to the tune of almost 200 billion euros ($205 billion) in
post-pandemic recovery funds.

“We need a strong Europe, we need a Europe of health, a Europe of solidarity. And we can only do that if there is no nationalism inside European countries,” he said.

He condemned the veto that he said right-wing Hungarian Prime Minister Viktor “Orban — friends and allies of the Italian right — is using every time he can (to) harm Europe”.

In Spanish, Letta highlighted Meloni’s ties with Spain’s far-right party Vox, at whose rally she spoke earlier this summer, railing at the top of her voice against “LGBT lobbies”, Islamist violence, EU bureaucracy and mass
immigration.

In English, he condemned the economic legacy of Berlusconi, a three-time premier who left office in 2011 as Italy was on the brink of economic meltdown, but still leads his Forza Italia party.

Letta’s programme includes a focus on green issues — he intends to tour Italy in an electric-powered bus — and young people, but he has made beating Meloni a key plank of his campaign.

Meloni insisted in her video that fascism was in the past, a claim greeted with scepticism given her party still uses the logo of a flame used by the Italian Social Movement set up by supporters of fascist leader Benito Mussolini.

In a joint manifesto published this week, Meloni, Berlusconi and Salvini committed themselves to the EU but called for changes to its budgetary rules — and raised the prospect of renegotiating the pandemic recovery plan.

Elections were triggered by the collapse of Prime Minister Mario Draghi’s government last month, and are occurring against a backdrop of soaring inflation, a potential winter energy crisis and global uncertainty sparked by
the Ukraine war.

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