Italy is expected to reduce its deficit ratio back below the 3% threshold, creating an opportunity to exit the excessive deficit procedure within the year.

(1) Italian Economy Minister Giorgetti stated on Tuesday that the country still has a chance to exit the EU's excessive deficit procedure this year. The fiscal deficit ratio for 2025 is expected to be revised downward in September to within the EU's 3% limit. He described the situation as "the race is not over yet." (2) If the revised data in September confirms that the deficit ratio meets the target, it will provide Italy with more flexible fiscal adjustment space, avoiding the triggering of subsequent punitive measures due to violations. This will also ease market concerns regarding the sustainability of Italy’s debt. (3) Giorgetti also ruled out the possibility of holding a nationwide election in April next year. This stance helps maintain policy continuity during the critical fiscal window, avoiding budget review uncertainties caused by early elections. (4) Currently, the spread between Italian government bonds and German government bonds already prices in some fiscal risk. If deficit data improves as expected, it may create trading opportunities for further narrowing of the spread, but the actual degree of adjustment still needs to await official data verification in September.