(Bloomberg) -- No matter how alert Italian Prime Minister Giorgia Meloni is to the dangers, she just can’t seem to avoid tempting fate in financial markets.Most Read from BloombergKey Taiwan Tech Firms Helping Huawei With China Chip PlantsWall Street Fear Gauge Ratchets Up After Jobs Data: Markets WrapKevin McCarthy Ousted as US House Speaker by Republican DissidentsWhy a US Recession Is Still Likely — and Coming SoonAirbnb Is Fundamentally Broken, Its CEO Says. He Plans to Fix It.Two months aft
-- No matter how alert Italian Prime Minister Giorgia Meloni is to the dangers, she just can’t seem to avoid tempting fate in financial markets.Airbnb Is Fundamentally Broken, Its CEO Says. He Plans to Fix It.
They know that financial turmoil was a formative part of Meloni’s political education — she had a front row seat when the bond market toppled Silvio Berlusconi in 2011. Whether she can steer her own fractious coalition through an obstacle course of populist promises and economic headwinds without triggering another crisis is now the question hanging over Italy as she enters a second year as premier.
“With growth slowing, future fiscal consolidation is very important,” said Evelyne Gomez-Liechti, a strategist at Mizuho International Plc. “Meloni needs to deliver some of that, or plans to do so in the coming years, to avoid debt sustainability worries resurfacing again.” The scale of the challenge became clearer last week when officials admitted Italy won’t return to European Union deficit limits until 2026. They no longer foresee a so-called primary surplus next year, where revenues exceed spending before interest costs — previously seen as a key commitment to fiscal discipline.
Combined with ECB efforts to unwind past bond-buying, that shift puts a greater onus on other investors to plug the gap. That’s happening for now as Italian households and non-financial corporations take advantage of the highest yield in the euro area. Rabobank analysts including Erik-Jan van Harn have mapped out a scenario where 3% inflation pushes the country’s interest-to-revenue ratio above 10%, a level they say “warrants at best a speculative” credit rating.
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