European Commission warns Italy of high risk of recession

UNITED STATES (OBSERVATORY NEWS) — Italy currently lives on the brink, the European Commission warned, Bloomberg writes.

The risk of Italy’s ability to refinance its huge debt in the medium and long term is “high,” according to a report by the EU executive.

Even in the short term, Italy is subject to market fluctuations, according to an assessment of the macroeconomic imbalance between the bloc members.

Such warnings are not new, and Rome has traditionally rejected Brussels’ instructions to combat budget deficits. But now there is a risk of recession, since the spread of the deadly coronavirus has already negatively affected the Italian economy.

“As a major exporter, Italy is particularly affected by the global economy,” the commission said.

“Italy’s large public debt makes investors very sensitive to perceived risks,” the EC said.

Italy’s debt ratio is close to 140% of GDP, the highest in the euro area after Greece.

The cost of borrowing in the country remains low compared to historical levels, although bonds fell in recent days after a virus outbreak caused a halt in the country’s industrial center.

Yields on 10-year bonds rose on Wednesday to 1.017%, an increase this week to more than 10 basis points.

“The need to roll over significant amounts of debt, amounting to about 20% of GDP per year, still exposes Italy’s public finances to a sudden increase in risk aversion in financial markets,” the commission said.

“High debt servicing costs also reduce the fiscal space for implementing growth-promoting and counter-cyclical policies,” the EC says.


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