Italy’s fraying coalition cabinet meets to discuss what to do with a property tax imposed by previous premier Mario Monti.
Silvio Berlusconi’s centre-right group wants to scrap it – though that would create a 4 billion euro annual financial gap to be filled elsewhere – while the centre-left PD of Prime Minister Enrico Letta wants to keep it for the rich, which would cost only 2 billion euros. The argument has already stalled decisions on more wide-ranging economic reforms. A percentage point rise in the main rate of value-added tax has already been pushed back to October from July and will need to be discussed again too.
The big question is whether the government is effectively paralysed until a vote next month on whether to bar Berlusconi from parliament following the upholding of his tax fraud conviction. Members of his centre-right PDL are threatening to bring down the government and trigger early elections if he is expelled. If he is not barred, swathes of Letta’s centre-left PD would react with horror.
It could be an act of folly for any of the parties to hasten early elections, given how unpredictable the result would be. So there’s a good chance that won’t happen. But it’s a live risk and one that has started feeding into the markets with Italian debt markedly underperforming Spain’s for starters. Italy will sell six-month treasury bills after domestic demand helped keep a lid on rising yields at an auction of zero-coupon bonds on Tuesday. The bigger test comes with a 5- and 10-year Italian bond auction on Thursday.
After declaring that British interest rates could remain at a record low 0.5 percent for three years, Mark Carney makes his first major policy speech as Bank of England Governor and holds a press conference to boot. His first and main task will be to convince doubting investors that his forward guidance on rates is credible. The market consensus is that rates will rise by 2015, not 2016, with next year not out of the question.