Di Maio Says Italy Isn’t Exposed to Speculators’ Attacks

(Bloomberg) -- Italian Deputy Prime Minister Luigi Di Maio says the country won’t be subject to an attack by speculators, after a leading figure from his coalition partner said the Italian and European establishment want to “abort” Italy’s populist government.

"I don’t see a real risk that this government will be attacked, it’s more a wish of the opposition," Di Maio said in an interview with Corriere della Sera published on Monday.

The spread between Italian and German bonds has been widening on concerns that Italy’s populist coalition government of Five Star Movement and the League is going to exceed limits set by the European Union in its budget law for 2019, which will have to be approved by the end of this year. In addition, the continued turmoil in Turkey has sparked wider concern of market contagion.

“The old establishment in Italy and Europe wants to abort this government to avoid encouraging any populist precedents,” Cabinet Undersecretary Giancarlo Giorgetti, the League’s representative in the office of Prime Minister Giuseppe Conte, said in an interview with newspaper Libero over the weekend. He said he feared “speculative funds” would use thin summer trading to launch attacks akin to those that brought down Silvio Berlusconi’s government in 2011.

No Blackmail

“If someone wants to use the markets against this government, they should know we are not blackmail-able,” Di Maio said in his interview. “This is not the summer of 2011 and Berlusconi isn’t at Palazzo Chigi,” referring to the office of the Prime Minister.

The yield on Italian 10-year bonds rose to 3.05 percent on Monday. The spread with similarly dated German bonds rose 7 basis to 273 basis points. The spread had been below 150 basis points before mid-May, when a Five Star-League link-up started to look possible.

Newspaper La Stampa said Monday that Prime Minister Conte discussed a financial attacks scenario with Di Maio and fellow Deputy Prime Minister Matteo Salvini, and the government has also had contacts with European Central Bank President Mario Draghi over it. Spokespeople for Conte didn’t immediately return requests for comment.

In an interview with Bloomberg last week, Di Maio said the coalition will seek to begin the introduction of a flat tax and a citizen’s income next year without running foul of EU budget restrictions.

Bank of America Merrill Lynch wrote in a note last week that the current spread between 10-year Italian and German bonds is not sustainable and a big move is likely in either direction, with any move being determined by how markets react to Italy’s budget plan for next year. Italian government leaders held several meetings this month about the 2019 budget, for which the broad outlines will be outlined in September.

Rating agencies including Fitch Ratings, Moody’s Investors Service, and S&P Global Ratings are all due to review their Italian ratings in coming months.

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