Trump has reportedly offered American funds to buy Italian debt.
President Donald Trump reportedly offered to buy Italian sovereign bonds at a White House meeting last month with Prime Minister Giuseppe Conte.
According to the Italian newspaper Corriere della Sera, Trump offered assistance in financing public borrowing in Italy in 2019, when the treasury of Rome was due to issue about 400 billion euros of debt.
Italy recorded a government debt equivalent to more than 130% of the country’s GDP in 2017, but managed to maintain repayment due to lower interest rates as a result of the impact of the ECB asset purchase program.
But the program is due to end in December, and Italy’s political instability, coupled with the EU’s faltering commitment to the EU, has seen Italian borrowing costs rise to levels not seen since 2014.
Last year, Italy recorded a government debt equivalent to more than 130 percent of the country’s gross domestic product, but struggled to keep payments because of a rate cut from the impact of the European Central Bank’s asset purchase program, which is due to end in December.
Trump could not have explained that he supports the cause of those who want to leave the euro in Italy.
“This is not unimportant because the possible future decision by the country to get out of the euro may seem less politically and financially risky if it has support from the US president.”
Italian bonds have been under growing pressure over the past few months amid concerns over the financial promises of the new coalition government and its cooler stance towards the euro zone.
The yield on 10-year Italian government bonds fell 2 basis points to 3.08 percent in early trading on Friday.
The benchmark was one of the best performance indicators in the euro zone in the first half of this week, with yields falling from 3.14 percent on Monday to a low of 2.937 percent on Wednesday.
But financial strategists were quick to pour cold water on the news of the potential offer of Donald Trump to Italian bonds.
“Obviously this has dominated the headlines this morning and may explain the pop in the open, but traders looking at the details should spoil the move,” said Christoph Rieger, head of interest rates at Commerzbank, a German-based bank.
“I will be cautious, although the United States does not have a sovereign wealth fund and neither the US Treasury nor the Federal Reserve has any mandate for such interventions,” he said.
Matt Cairns, a strategist at Rabobank, a Dutch-based bank, said the United States is likely to look to boost investment in the Italian economy and perhaps in infrastructure projects.
“This would benefit from the planned tax regime set by the new government to promote foreign investment in the Italian economy,” he said.