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Italy's populist government skates toward looming debt crisis

Italian PM Giuseppe Conte
Italian Prime Minister Giuseppe Conte meets the press at Palazzo Chigi before summer break, on August 08, 2018 in Rome, Italy. Photo: Simona Granati - Corbis/Corbis via Getty Images

Italy faces a potential downgrade in its sovereign credit rating from three agencies — Moody's, Fitch and S&P — as its newly-elected coalition government attempts to incorporate expensive campaign promises into its budget for next year, according to FXStreet.

The big picture: The spending promises made by the anti-establishment Five Star Movement and the far-right League, whose coalition government must approve a budget by mid-October, include cutting taxes while also boosting pensions and welfare — policies that could cost between $74 billion and $142 billion. Public debt already sits at 130% of GDP, second-largest in the euro zone, and an Italian banking crisis could spell serious trouble for the rest of Europe.

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