Italy’s Conte will not fully implement fiscal plan

Significance

The new government’s investiture vote in parliament on June 5-6 was preceded by massive volatility in financial markets. Its fiscal plan appears unsustainable and its views on EU relations are unclear.

Impacts

• Italy’s recovery is vulnerable to a slowdown in global GDP growth and this could be be exacerbated by trade turbulence.
• An aggressively expansionary fiscal policy will put Italy’s sovereign rating under pressure.
• Full implementation of the government’s promises would trigger higher borrowing costs.