Letter To Italian Gov't Latest In ECB-Rome Tensions

This morning saw a risk-off market move (EUR weaker, Bunds higher) after Corriere Della Sera reported that the ECB was sending a letter to the Italian government critiquing its new bank windfall tax proposal announced earlier this month.

• The newspaper notes that the ECB has never failed to have its say on such extraordinary financial sector taxes implemented by member governments - in this case the ECB's objections are that government authorities shouldn't intervene in bank interest margins because it doesn't consider costs and weakens institutions' ability to resist shocks.
• Bloomberg reported via sources yesterday that Rome aims to raise up to E3bln from the 40% levy on banks' windfall profits; recall that in a swift row-back from the initial news which met with financial market blowback, the measure would be capped at 0.1% of assets.
• While the ECB's rebuke is not unexpected and not binding, it heightens the tension between the ECB and Rome (gov't officials have criticised the central bank's rate hikes). The bill will begin its passage into law through Parliament in the 2nd week of September.