Home » Currency Note » Currency Note » Budget proposal clash seems inevitable

Italy’s refusal to change its plans for next year means that a budget proposal clash with the European Union appears inevitable. The eurozone’s third-largest economy has refused to compromise on its economic targets, and sent a letter to Brussels yesterday which explained why it would be increasing its deficit to 2.4% of GDP. The Prime Minister, Giuseppe Conte, insisted that the increase in borrowing is needed to ensure that Italy’s economy grows, but the EU will likely reject the plans.

Indeed, there have been reports that the EU will seek a revision of Italy’s draft budget – the first time this has ever been asked of an EU member state. Italy’s populist government has asked for constructive talks with officials, but it remains to be seen whether an agreement can be reached. Conte insisted that Italy will not be leaving the euro and dismissed suggestions there could be an Italexit.

Closer to home, the pound took a bit of a hammering and fell below the $1.30 mark for the first time since 4 October 2018. At one point, it also dropped below the €1.13 mark, but climbed back above it towards the end of the afternoon. Unsurprisingly, the weakening came about through continued uncertainty over Brexit. Headlines over the weekend suggested that Theresa May doesn’t have long to save her job, but this has been reported a few times in the past. Given the impossible nature of the task at hand, it is difficult to see how anybody else could placate all sides of the cabinet, let alone parliament.

There were no major economic data releases yesterday, but today we will see the flash consumer confidence reading from the eurozone, as well as CBI distributive trades and business optimism. Bank of England Governor Mark Carney is also due to give a speech later this afternoon.

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