The European Commission will publish its views on the draft budget plan of all 19 Eurozone states today, at around 1100GMT. And without a doubt, Italy’s DBP will be included. It’s generally expected that the Commission will, at the same time, publish a report regarding Italy’s breach of EU rules. That will be the first step in the so called Excess Deficit Procedure, which could eventually lead to fines for Italy up to 0.2% of its GDP.
Reactions in the bond markets will be closely watched today. For now, German 10 year yield stands at 0.354. Italian 10 year yield stands at 3.618. That is, German-Italian spread is now at 326. It’s generally agreed that 300 is an alarming level while 400 is definitely unsustainable. Many of the smaller, regional Italian banks will have capitalization problems at 400.
