Italy’s Finance Minister Admits Government Worried About Markets

(Bloomberg) — Italian Finance Minister Giovanni Tria said the government is worried by the “unacceptable” bond yield spread, which may be heading toward the widest gap in more than five years.

His admission of concern came as he appealed for calm amid a war of words between the government and European Union authorities over Rome’s spending program for the coming year. But he offered no sign that the government will change its plans, repeating the targets that have already led to the bond selloff.

Investors have reacted negatively since details of Italy’s budget plans have emerged. The 10-year yield spread against similarly dated German bunds touched 316 basis points Tuesday.

“Although so far there hasn’t been an explosion as some feared, we are of course worried,’’ Tria told lawmakers in Rome. “As a responsible government we aim to explain the budget and thus guide investors in our meetings in order to calm markets.”

He said he hopes further explanations of the budget measures and their aims will bring the spread back from its “unacceptable’’ level.

Unexpected Crisis

“We are working to get the spread to converge towards the fundamentals and to create confidence. If the spread reaches 500?” Tria said in response to a hypothetical question. “The government will do what it does in an unexpected crisis, because we aren’t expecting that.”

The coalition’s plans for a wider deficit — to fund pledges including a “citizen’s income” — have led to criticism from the European Commission. In response, Deputy Prime Minister Matteo Salvini said Monday that bureaucrats in Brussels are the “enemies of Europe,” escalating the tensions between the two sides.

Addressing lawmakers, Tria said the tone needs to come down a notch as Italy prepares to present its draft budget.

Bonds reversed an earlier advance, and the 10-year yield jumped above 3.6 percent for the first time since 2014.

Criticism of the budget isn’t just coming from outside Italy. At the hearing in Rome, former Finance Minister Pier Carlo Padoan offered a negative view of the fiscal plans, including the populist government’s decision to roll back a key pension reform that raised the retirement age.

‘Not True’

“To say that allowing people to retire sooner will increase youth employment is laughable, it is absolutely not true,” Padoan said. “If employment needs to be at the center of government action, and I agree, then let’s talk about serious things.”

Coalition leaders Luigi Di Maio of the anti-establishment Five Star Movement and Salvini of the anti-migrant League are sticking by their promises to voters despite market turbulence. They’ve set the deficit at 2.4 percent of GDP next year, allowing them to start paying for the “citizen’s income” for the poor, tax cuts and a lower retirement age.

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