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Italian confidence falls ahead of crucial bond auction
The ISAE index for Italian consumer confidence saw a fall to 77.4 in February from 80 last month. Not a terrible number, as the country remains locked in political uncertainty. Open Europe's Vincenzo Scarpetta discusses the role political uncertainty will play:
Italy’s borrowing costs have been rising over recent days, but they remain well below 6 per cent and far from their peak last summer. This probably highlights that intervention by European Central Bank (ECB) president Mario Draghi – via the creation of the as yet untapped outright monetary transactions (OMT) bond-buying programme – may have played a more significant role in bringing interest rates down than reforms pursued by Monti. But a fragmented, anti-austerity Italian parliament could also make it more difficult for the country to tap the ECB’s bond-buying scheme. This is because Italy would need to access the European Stability Mechanism (ESM, the Eurozone’s bailout fund) simultaneously. This would mean a series of strict conditions – which Berlusconi and others could resist – and would require approval from several Northern Eurozone parliaments, including the German Bundestag. Again, this means more uncertainty.
Italian bond auctions of up to €6.5bn at around 10:00 today for 5-yr and 10-yr bonds should be watched carefully.