Mamma Mia, Here We Go Again

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What's going on?

It’s been a busy day in Italy. On Thursday, the country raised a whopping $6 billion from investors by selling bonds, and the government dashed toward a midnight deadline to submit its budget (tweet this).

What does this mean?

The Italian government wants to spend, spend, spend to kickstart its economy, but the country’s already deep in debt. So the government’s got that to reckon with. Italy owes more than its entire economy, a violation of the European Union (EU)’s economic rules – like keeping debt below 60% of the size of its economy and deficit (essentially, the money it spends that exceeds what it receives each year) below 3%.

Why should I care?

For markets: Investors might not be too concerned about Italy’s debt.

Fitch – a debt rating agency (which scores countries’ and companies’ credit worthiness, rather than peoples’) – thinks Italian government bonds (i.e. Italian debt) looks riskier than earlier in the year. Despite this, Italy’s debt raise had more investors lining up to buy than it needed – which indicates they’re not too concerned. More good news for Italy was that the high demand for its bonds pushed the price up and, therefore, the yield (the interest investors receive on the debt as a percentage of its price) down – as the two move in opposite directions.

The bigger picture: Europe’s paying close attention to Italy.

The European Central Bank (ECB) has plans to remove its training wheels and increase interest rates next year, as the eurozone is doing okay. But there are still a number of booby traps – Greek and Italian debt, and easing trade tensions (for now), to name a few. With Italy likely to push the EU’s economic boundaries to keep itself afloat, other countries – and investors – will be in the peanut gallery to see if the ECB will relax its rules to keep growth in Europe chugging along.

Originally posted as part of the Finimize daily email.

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