Bonds News

UPDATE 1-Di Maio accuses EU of market "terrorism" over Italy budget

(Adds Di Maio comments, details, background)

ROME, Oct 1 (Reuters) - Deputy Prime Minister Luigi Di Maio on Monday accused European Union officials of “terrorism” by deliberately upsetting financial markets with negative comments about Italy’s budget plans.

Italian bond yields have risen sharply since Rome last week presented a budget targeting a fiscal deficit for next year at 2.4 percent of gross domestic product, three times the previous goal.

The government projected the same deficit level for the following two years, flouting EU demands that the fiscal gap should progressively fall towards zero.

“Some European institutions are playing ... at creating terrorism on the markets,” said Di Maio, who is the head of the anti-establishment 5-Star Movement.

Speaking to reporters in Rome, he specifically took aim at European Economic Affairs Commissioner Pierre Moscovici, who earlier said in Luxembourg that Rome’s plans were “obviously” deviating from EU rules on fiscal discipline.

“Some people weren’t happy to see the spread (between Italian benchmark bond yields and the German equivalent) hadn’t risen this morning, so Moscovici decided to make a declaration against the budget to upset the markets,” Di Maio said.

Moscovici said at a meeting of eurogroup finance ministers that although Italy’s plans were not in line with the rules, he nonetheless wanted to maintain a dialogue with the Rome government that took office in June.

European Commission Vice President Valdis Dombrovskis later also said that an initial assessment suggested Italy’s budget breached EU rules.

Di Maio, leader of the anti-establishment 5-Star Movement which governs with the right-wing League, defended the 2.4 percent deficit target, pointing out that it was broadly in line with the deficits Italy has run in the last five years.

“It’s no different from that of the previous governments, but if 5-Star and the League do it, we are bad and ugly, if the others do it they are statesmen,” he said.

Di Maio said if any ratings agencies should downgrade Italy’s sovereign debt over the budget plan “it would mean there is a prejudice against this government”.

The agencies have been waiting for Rome’s fiscal plans before reconsidering their ratings and Moody’s, which has a negative outlook on Italy’s Baa2 rating, said it would pass judgment by the end of October.

Economy Minister Giovanni Tria will leave the Luxembourg meeting early, returning to Rome later on Monday to work on the details of the budget, skipping the meetings planned for Tuesday, his ministry said earlier in the day.

Di Maio said there was “no emergency” connected with the minister’s return to Rome, and also “no reason to question” the 2.4 percent deficit target.

He added that he would be holding further meetings on the budget in the next few days with Tria, Prime Minister Giuseppe Conte, Deputy Prime Minister and League Leader Matteo Salvini and Foreign Minister Enzo Moavero. (Writing by Gavin Jones; Editing by Crispian Balmer)