Last month, the coalition government of Italy had taken a decision to spend more than what was decided in the budget. This announcement had already lowered the share prices and the value of Euro.
Over the years, Italian borrowings have increased and so have the interest and the debt. Due to all these negative factors, the investors are skeptical about investing further in the economy. Marketers are speculating that this kind of over-spending decision from the government might lead to a standoff between the government and the European Commission. There is even a probability that Italy might face some legal hassles from the European Commission due to the overwhelming expenditure that the nation has planned.
This over expenditure of Italy comes from the decision of the government to reduce the retirement age; they have also decided to spend more on the infrastructure and welfare of the citizens. All these expenses are to be covered by borrowing. As per a report sent to the European Commission by the government, a borrowing of 2.4% was done in 2019. While the European Commission allows debt of 60% of GDP, Italy has borrowed almost double of the amount. One of the best ways to clear this debt is by reducing the deficit. In past few years, Italy has controlled the deficit amount. At present, Italy ranks second in respect of debt burden while the top ranker is Greece (132%).
As per the economists, banks are the weakest link of the country. They have almost a quarter of the debt of the country; they also have multiple problem loans. If the value of the bonds falls, they are most probably to get the hit. Another speculation in the market is that Italy might leave the euro zone which will again lower the number of deposits as investors will not be willing to convert to the new Italian currency format.