Italy's New Government Passes First Market Test

Italy's ten-year borrowing costs fell on Monday to the lowest point since October 2010 after the country's new prime minister named his cabinet over the weekend, ending two months of political deadlock in Italy. Italy's new economy minister will present his economic plan to parliament later on Monday,

with Europe's financial markets looking on carefully to see if the country's political and economic reforms – on hold as Italy struggled to form a government - will be put back on track. Fabrizio Saccomanni, the coalition government's new economy minister, said in an interview on Sunday that he plans to cut taxes and public spending and lower borrowing costs. Saccomanni, who is currently deputy governor of Italy's central bank, told the Italian newspaper La Repubblica on Sunday that he wanted to "restructure the state budget" to support companies and low-earners, while cutting some unproductive public spending to create resources needed to reduce taxes. He said it was important to instill confidence in Italy's economy and proposed to do this by creating a "pact" with banks, consumers and businesses to boost lending, consumption and investments. He did not provide any more details on what such a "pact" could entail. Saccomanni said that Italy's borrowing costs, which have remained stable despite two months of political deadlock, could plummet. The interest rate differential between Italian 10-year bonds and the German benchmark could fall to 1 percentage point or less from the current 3 points, he said.