The Milan stock exchange's FTSE Mib index dropped 2.43% on Monday, taking it below 20,00 points, while Italy's bond spread crossed the 300 basis-points mark. The turbulence comes after the European Commission sent the Italian government a letter expressing concern about Italy's budget plans and the intention to let the deficit to climb to 2.4% of GDP next year.
Bank stocks were hit hardest on Monday, amid fears of lenders needing new capital increases. The spread between Italy's 10-year BTP bond and the German Bund climbed to 309.8 basis points - the highest level since April 2013. The yield on the BTP peaked at 3.62% - the highest level since February 2014, before closing on 303. The spread, an important measure of Italy's borrowing costs and a gauge of investor confidence, closed at 285 points on Friday. Deputy Premier and Interior Minister Matteo Salvini blamed speculators for the rise in Italy's bond spread and said the government had no intention of changing policy. "If I wanted to think badly, I'd say that there is a Soros-like manoeuvre by speculators betting on Italy's bankruptcy to be able to buy the healthy companies that remain at a cut price," Salvini said. "In the name of the government, I say that we will not go back. "Those who want to speculate on the Italian economy should know that they are wasting their time. "As for the spread at 300 points, I'd like to say that we are faced with a clash between the real economy and the virtual one, between real life and financial reality".
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