Italy's Salvini says ratings agencies must be fair, rules out euro exit

 Italy’s Deputy Prime Minister Matteo Salvini said on Monday he hopes credit agencies show no prejudice towards Italy when they review their ratings of the country’s debt, and again ruled out an exit from the euro.
Italy's Interior Minister Matteo Salvini talks at a news conference during his official visit in Tunis, Tunisia, September 27, 2018. REUTERS/Zoubeir Souissi
Moody’s, which has a negative outlook on Italy’s Baa2 rating, has been waiting for Rome to announce its fiscal plans and said it would pass judgement by the end of October.
Standard & Poor’s, that rates Italy’s debt “BBB” with a stable outlook, is scheduled to review its rating on Oct.26.
“I hope no one has prejudice towards this government, or strange intentions,” Salvini, who is also head of the ruling far-right League party, said in an interview with RTL 102.5 radio.
He added that credit agencies’ moves should not be used to force Italy to sell off its “jewel” companies, such as state-controlled energy groups ENI (ENI.MI) and ENEL (ENEI.MI), insurance company Assicurazioni Generali (GASI.MI) and national post office Poste Italiane (PST.MI).
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“My children will grow up in an European condominium with euros in their pockets. The exit from the euro is not in the agenda, not today, tomorrow or the day after,” Salvini said.
Italy’s expansionary multi-year budget plan published late on Thursday may backfire on the populist government, according to several analysts who see a risk of rising borrowing costs, a bruising battle with Brussels and ratings downgrades.
In a letter sent to Italy last week, the European Commission said it is concerned of the country’s budget deficit plans for the next three years since they breach what the EU asked the country to do in July.
But Rome insisted on Saturday it would “not retreat” from its spending plans.
“This government was attacked by newspapers and European commissioners the moment it was born. Having said that, I’m a very busy man and certainly have no time for being angry,” Salvini said.Italian assets slumped yet again on signs that the government’s confrontation with the European Commission over its budget won’t be resolved anytime soon.
Yields on benchmark 10-year bonds rose above 3.5 percent for the first time in four years while stocks slid to the lowest in more than a year after the European Commission said the populist coalition’s plans for a wider deficit are in breach of common rules.
In a letter to Italian Finance Minister Giovanni Tria, EU Commissioners Valdis Dombrovskis and Pierre Moscovici pointed to a “significant deviation” of budget targets from the fiscal path in a reference to the planned 2.4 percent budget-deficit target. Deputy Prime Minister Luigi Di Maio shrugged off the attacks, saying his anti-austerity view will grow stronger across the continent.
Italian bonds have been pummeled since the budget deficit was announced Sept. 27, with full proposals due to be handed over to the European Commission for review on Oct. 15. S&P Global Ratings and Moody’s Investors Service are due to review the sovereign rating before the end of the month.
“The Italians are continuing to test the EU’s resolve,” said Jens Peter Sorensen, chief analyst at Danske Bank A/S. “If neither the EU or Italy back down, yields will continue to climb higher from here. But I expect that Italy and the EU will find a compromise, even though it looks difficult at the moment.”
The yield on 10-year bonds climbed 11 basis points to 3.54 percent as of 9:24 a.m. in London, after touching 3.55 percent, the highest since February 2014. The two-year yield jumped 19 basis points to 1.54 percent.
Local stocks fell for a third day, with the FTSE-MIB Index of shares sliding as much as 1.9 percent to the lowest level since April 2017.
While political uncertainty remains high, Italian bonds offer very attractive yields for foreign investors, especially when exchange rates are taken into account, according to Morgan Stanley.
“If you’re an investor in dollars or another currency, the hedged yield on Italian assets is very high,” head of cross-asset strategy Andrew Sheets told Bloomberg TV. “You still have some uncertain and outstanding issues with what the rating agencies will do, but for the moment I think that uncertainty is being balanced by the fact yields have repriced a pretty significant amount.”