The euro fell on Friday to its lowest in nearly two weeks while Italy’s bond yields hit their highest in three after the government agreed to set a higher than expected budget deficit target that could put Rome on a collision course with Brussels, Reuters reports.
The Italian government targeted a budget deficit of 2.4 percent of gross domestic product (GDP) for the next three years, marking a victory for party chiefs over economy minister Giovanni Tria, an unaffiliated technocrat.
The deficit, though within the prescribed EU limit of 3 percent of GDP, is a concern for investors who fear the country’s anti-establishment government is not committed to tackling its huge debt load. Italy’s debt-to-GDP ratio stands at about 130 percent, the highest in the euro zone behind Greece.
European shares opened lower, with shares in Italian banks - whose big sovereign bond portfolios make them sensitive to political risk - bearing the brunt of selling pressure. The pan-European STOXX 600 index was down 0.3 percent by 0743 GMT.