Despite the conflicting views of the coalition parties, Italian voters are unlikely to head to the polls again soon.
The 2019 budget deficit is likely to land somewhere between 2.0-2.4% of GDP as the government's initiatives are scaled down and phased in over time, but the devil will be in the detail.
The real fight for the Italian government is with the market rather than the EU. We do not expect a budget deficit of around 2% to trigger a rating downgrade.
Italian risks will come back in the medium term, as fundamental issues are unresolved and debt dynamics are vulnerable to an economic downturn.
Italian government bonds have room for further performance, especially in the 10Y segment, while the political risk premium on the EUR is retreating.
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