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Italian bonds are being mobilized this morning after Rome has bowed to the pressures of the European Union and tore up its tax and spending plans for 2019.
After weeks of pressure and the looming threat of a disciplinary procedure of the EU, the Italian government has presented new tax proposals that would mean fewer loans next year.
The new offer would create a budget deficit of 2.04% for 2019, down from the 2.4% that had sparked a bruising battle with Brussels.
Making a brave face, Prime Minister Giuseppe Conte told reporters last night that:
"We have made a serious and reasonable offer".
This seems a significant concession to the EC, even if we do not yet know exactly which policies Rome will have to abandon.
The talks will continue in Brussels today, to deepen further details.
As Bloomberg explains:
Officials have warned that there is still a lot of work to be done to meet EU regulations.
The newspaper La Stampa quoted a "source" of the European Union saying that "there is still a gap to fill, we hope to be able to do it with the work that will continue in the coming days".
The financial markets have welcomed the news. Investors are accumulating in Italian debt, driving up prices.
This means that the yield (or interest rate) on 10-year Italian bonds fell to 2.9% this morning, from 3.7% a few weeks ago. This is the lowest level since the beginning of October.
The gap between Italian and German funding costs also fell to its lowest level in over two months, suggesting that Italy is considered a less risky investment.
Also coming today
The Governing Council of the European Central Bank will meet today and it is expected that the taps will be shut down on its plan to stimulate the purchase of goods. This would lead to the end of three and a half years of purchases of bonds that have inflated the budget by € 2.6 billion.
The pound is stable this morning around $ 1,264, after Theresa May won her vote of confidence last night – but not with an overwhelming majority (only 200 votes out of 117).
The PM is now traveling to Brussels today for an EU summit, for further discussions on Brexit.
L & # 39; agenda
- 12.45 GMT: Monetary Policy Committee of the European Central Bank
- 13.30 GMT: ECB press conference with Mario Draghi