By Alvise Armellini and Francesco Canepa

ROME/FRANKFURT (Reuters) – Italian ministers lashed out at the European Central Bank on Friday, labelling as “baffling” and “crazy” a decision to hike borrowing costs that raised the financial pressure on one of the euro zone’s most indebted countries.

Three senior ministers took aim after the ECB on Thursday, raised its benchmark rate by 50 basis points as widely expected, and signalled further increases ahead while laying out plans to reduce its bond purchases.

As that message drove Italian borrowing costs higher on financial markets on Friday, policymakers at the bank lined up to reinforce expectations that euro zone rates would continue to rise in an effort to tame stubbornly high inflation.

In unusually stark comments likely to fuel concerns abroad about eurosceptical tendencies within Giorgia Meloni’s right-wing government, Deputy Prime Minister Salvini branded the ECB’s conduct “unbelievable, baffling, worrying”.

Formed in October, Meloni’s government is also holding out on ratifying the euro zone’s bailout fund.

Foreign Minister Antonio Tajani, also a deputy prime minister, meanwhile said the ECB’s moves would harm economic growth, with fallout for markets and households at a time when inflation in Europe was in his view largely due to the war in Ukraine.

Defence Minister Guido Crosetto, a close ally of Meloni and co-founder of her Brothers of Italy party, said on Twitter that raising interest rates “makes no sense” and called the ECB’s move to start winding down its sovereign bond purchases “crazy.”

On Thursday Crosetto, alongside a chart showing a widening of the gap between German and Italian borrowing costs, sarcastically thanked ECB President Christine Lagarde for her “Christmas present” of higher rates.

INFLATION TARGET

ECB policymakers from across the euro zone defended the bank’s decision-making on Friday.

France’s central bank governor Francois Villeroy de Galhau said this was needed to bring euro zone inflation, currently at 10%, back to the ECB’s 2% target “by the end of 2024 (or) end 2025”.

Estonian governor Madis Mueller said rates would probably need to rise more than markets had expected so far, while Finnish central bank chief Olli Rehn said 50 bps hikes were likely at each of its next two meetings.

The ECB has raised the rate it pays on bank deposits from -0.5% in July to 2% on Thursday, when it said it expects to raise them further at a steady pace.

It will also, from March, stop replacing some of the 5 trillion euros ($5.32 trillion) worth of bonds it has bought over the past eight years to stimulate inflation when it was too low.

These bond purchases had been a vital source of funding for weaker euro zone borrowers including Italy since then ECB President Mario Draghi, an Italian who would go on to serve as Prime Minister, launched them in 2015.

The Italian-German bond yield spread closed at 206 basis points on Thursday, up sharply from 191 the day before, and widened further to 219 bps on Friday morning.

Inflation in Germany, the euro zone’s biggest economy, is likely to be higher than earlier thought while economic growth will be weaker with a recession next year now certain, the Bundesbank said on Friday.

($1 = 0.9406 euros)

(Writing by Francesco Canepa; Reporting by Alvise Armellini, Dominique Vidalon, Sudip Kar-Gupta and Balazs Koranyi; Editing by Gianluca Semeraro, Raissa Kasolowsky, Arun Koyyur and John Stonestreet)

PARIS (Reuters) -Searches were conducted on Thursday at U.S conglomerate General Electric’s Belfort site in France as part of an ongoing probe into possible tax fraud, France’s financial prosecutor said on Friday, confirming an AFP report.

In an email responding to a Reuters request, deputy financial prosecutor Antoine Jocteur-Monrozier said the searches were part of a preliminary probe into alleged money laundering and tax fraud.

The inquiry was triggered after Fabien Roussel, the head of France’s Communist Party, voiced suspicions about the company’s tax conduct in July 2019, he said.

A second complaint was filed by the company’s social and economic committee in May, he added.

“The investigation … continues,” Jocteur-Monrozier said.

A spokesperson for GE in France did not immediately reply to a request for comment.

AFP first reported the searches on Thursday. It said the workers’ council and unions at the site had alleged in their own complaint that GE had transferred 555 million euros ($590 million) of profit from the Belfort operation to Switzerland or the United States.

Unions accused management of trying to show the site was losing money in order to justify the job cuts at the site – depriving the French government of millions of euros in tax revenue in the process.

GE has denied the claims, saying it obeys the tax laws in every country where it operates. “Today at our site, the company is the subject of a search by the judicial police,” management wrote in an email to Belfort’s 4,000 employees cited by AFP. “These officers will be going through the offices, a normal procedure in this type of inquiry.”

($1 = 0.9406 euros)

(Reporting by Sudip Kar-Gupta and Silvia Aloisi; editing by Jason Neely and Mark Potter)

By Lucy Raitano

LONDON (Reuters) -Investors ploughed cash into stocks and bonds and sold cash and gold in the week to Wednesday, BofA Global Research said on Friday, hailing the end of “extreme bear sentiment”.

Equity inflows totalled $18 billion and bond funds saw $2.3 billion of inflows while investors sold $0.2 billion of gold and shed cash at the highest rate in three months, selling $31.1 billion.

U.S. equity value funds recorded their largest inflows ever, of $14.3 billion, and investors bought passive equities and sold active equities.

BofA’s “Bull & Bear” indicator jumped to its highest level since March 15 in the week to Wednesday.

The shift in sentiment was reflected in markets. Europe’s STOXX 600 hit at a more than six-month high on Tuesday while the Nasdaq and S&P 500 traded around three-month tops earlier this week.

Since then central banks including the Federal Reserve, and European Central Bank (ECB) have warned that more rate hikes are needed to curtail inflation, with the ECB in particular giving a very hawkish message.

The STOXX 600 is now on track for its biggest two-day drop since late September, while the S&P 500 closed on Thursday at its lowest level since Nov. 10.

BofA’s report also showed that emerging market debt funds recorded inflows of $0.9 billion, their largest since April 2022, while emerging market equity funds saw their second week of outflows, totalling $1.6 billion.

Investors sold $1.3 billion of bank loan funds, the largest outflow in three months.

(Reporting by Lucy Raitano, editing by Alun John and Emelia Sithole-Matarise)

SHANGHAI (Reuters) -China plans to increase flights with a goal to restore the country’s average daily passenger flight volumes to 70% of 2019 levels by Jan. 6, financial news outlet Caixin reported on Friday citing a document from the aviation regulator.

The aim is part of a work plan the Civil Aviation Administration of China (CAAC) issued on Wednesday to encourage the recovery of the country’s air transport market, Caixin said.

The CAAC did not immediately respond to a request for comment.

The plan said there would be three stages to the process, with the first to increase the number of flights a day to a maximum of 11,280, of which up to 9,280 could be domestic ones, by Jan. 6, Caixin said.

Between Jan. 7 to Jan 31, average daily passenger flight volumes should increase to 88% of 2019 levels, before the COVID-19 pandemic began. Daily flights should hit a maximum of 13,667, of which up to 11,667 could be domestic ones, it added.

The industry should be in a “stable recovery period” by the end of March, it said.

The plan comes after China last week abandoned many key curbs of its zero-COVID policy, which has over the past three years reduced domestic demand and kept international flights at a tiny fraction of pre-pandemic levels.

The changes prompted a significant rise in mobility, with road and air transport picking up for the first time in almost two months, according to data from the transport ministry, travel analytics firms and energy consultancies.

Weekly domestic air passenger volumes jumped 68% last week from the prior week to 3.7 million – the biggest increase since the Lunar New Year holiday in February, according to aviation data provider Variflight. That number is still 37% lower than a year earlier and 68% lower than 2019, however.

Travel restrictions have especially weighed on companies such as the country’s largest airlines, Air China Ltd,, China Southern Airlines and China Eastern Airlines, which posted steep third-quarter losses in October.

(Reporting by Brenda Goh and Albee Zhang; editing by Raissa Kasolowsky and Emelia Sithole-Matarise)

By Dietrich Knauth

(Reuters) – The U.S. Department of Justice’s bankruptcy watchdog on Thursday appointed a committee to represent FTX accountholders and other junior creditors in the collapsed crypto exchange’s bankruptcy case.

The committee – which includes a mix of individual account holders, investment funds, and an affiliate of U.S. crypto firm Genesis – will represent the interests of all unsecured creditors, who are among the last to be paid in a typical bankruptcy.

The nine-member committee includes three individual creditors, Genesis affiliate GGC International Ltd, crypto trader Wintermute Asia PTE, Coincident Capital International, Pulsar Global Ltd, Octopus Information Ltd and Wincent Investment Fund.

FTX filed for bankruptcy protection in Delaware in November after traders pulled $6 billion from the platform in three days and rival exchange Binance abandoned a rescue deal. The collapse has left an estimated 1 million creditors facing losses totaling billions of dollars.

Crypto firms that went bankrupt earlier this year, including Voyager Digital and Celsius Network, have classified most of their customers, particularly those with interest-bearing accounts, as unsecured creditors.

Unsecured debts, such as credit card or medical bills, do not grant lenders any specific collateral rights. Secured debt, like a mortgage or car loan, is backed by specific collateral that may be claimed by a lender if the debt goes unpaid.

U.S. Bankruptcy Judge John Dorsey, who is overseeing FTX’s Chapter 11 case, said during a Wednesday court hearing that he expects the creditors’ committee to weigh in on issues related to customer privacy at a hearing scheduled in early January.

FTX has argued that customer names should be kept secret to protect them from scams and to preserve the business value of FTX’s customer list for potential buyers.

Creditor names, contact information, and the amount they are owed are treated as public information in most bankruptcy cases, and both the Justice Department and a group of media organizations have tried to block FTX from straying too far from bankruptcy’s transparency requirements.

(Reporting by Dietrich Knauth, Editing by Alexia Garamfalvi and Deepa Babington)

By Indradip Ghosh

BENGALURU (Reuters) – Euro zone business activity shrank at the slowest pace in four months in December, suggesting a likely recession ahead will be shallower than previously thought, a survey showed on Friday, while prices rose at the most modest rate in about a year.

S&P Global’s flash Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, rose to a four-month high of 48.8 this month from 47.8 in November, higher than the median Reuters poll forecast of 48.0.

But December was the sixth month below the 50 mark separating growth from contraction, the longest streak of a downturn since June 2013.

“The rise in the purchasing managers’ indices gives us hope that the recession in the euro area will be very mild. Nevertheless, we should not rejoice too soon. The economic environment has clouded noticeably,” said Christoph Weil, senior economist at Commerzbank.

Still, the downturn in German economic activity eased for the second straight month as retreating price pressures bolstered the view that a milder recession lies ahead, a sister survey showed.

However, French business activity shrank at a faster rate, adding to signs of a recession ahead for the euro zone’s second-biggest economy as inflation hits businesses.

“The flash PMIs for December provide more evidence that businesses in some parts of the euro zone have become a bit less gloomy about their current situation – but they still point to a combination of recession and very high inflation,” said Andrew Kenningham, chief Europe economist at Capital Economics.

Despite the rising risks of an economic downturn, the European Central Bank hiked its key deposit rate to 2% from 1.5% on Thursday and hinted more would come as inflation is still far above its target rate of 2%.

Higher interest rates coupled with cost-of-living concerns mean demand is likely to weaken further, a view shared by a Reuters poll that showed the economy would contract this quarter and next, meeting the technical definition of recession.

In Britain, outside the European Union, the downturn has eased slightly this month, and companies have reported the weakest cost pressures since mid-2021. Overall the survey fitted with other signs that the economy is contracting at a slow pace.

EASING INFLATION

In the bloc, new orders in the private sector fell at a slower pace and soaring price growth – driven by higher energy costs in the wake of Russia’s war in Ukraine – waned further. While input prices rose at their slowest rate since May 2021, the PMI subindex tracking output prices was at its lowest in a year.

“Some good news for once, with the euro zone PMI ticking up in December. Inflation pressures continue to fade due to lower demand and moderating supply chain problems. For the ECB, the latter adds to doubts about yesterday’s hawkish tone,” said Bert Colijn, senior economist at ING.

Optimism about future output increased to a four-month high. But declining demand forced firms to reduce headcount at the second-weakest rate since February 2021.

Activity in the bloc’s dominant services industry declined again, but the headline index increased to 49.1 – the highest since August. The Reuters poll had predicted no change from last month’s reading of 48.5.

The main index tracking manufacturing activity rose to 47.8, compared to the Reuters poll estimate and November’s 47.1, driven by better supply conditions and waning concerns over energy constraints.

While prices increased at their weakest rates in about two years, an index measuring output, which feeds into the composite PMI, jumped to a six-month high of 47.9.

(Reporting by Indradip Ghosh; Editing by Hugh Lawson)

By Tetsushi Kajimoto

TOKYO (Reuters) -Japan’s ruling bloc formally agreed on Friday to revise the national tax code for the next fiscal year starting in April, aiming to shift household assets into investment as part of Prime Minister Fumio Kishida’s “new capitalism” agenda.

The ruling Liberal Democratic Party (LDP) and its ally Komeito also endorsed an urgent plan to raise corporate, tobacco and disaster-reconstruction income taxes by 1 trillion yen ($7.3 billion) to help double the defence outlay to 2% of GDP by 2027.

“The tax talks this year were different from a normal year,” LDP tax chief Yoichi Miyazawa told reporters. “What everyone wanted to hear the most is on how the defence tax would go.”

On tax-code reform, Kishida has sought to shift Japan’s 2 quadrillion yen ($14.52 trillion) in household assets away from savings and into investment, under his flagship initiative aimed at redistributing income.

As part of this initiative, the government will make permanent a programme that offers tax breaks for households’ stock investments. It will triple the limit on investments eligible for tax breaks starting in 2024.

As part of symbolic efforts to narrow income disparities, the government will apply in 2025 additional tax for 200 to 300 individuals who earn annual income of above 3 billion yen through investment in stocks and real estate.

PUTTING OFF TAX TALKS

Finance Minister Shunichi Suzuki said on Friday that the defence build-up plan brings it to a different stage in terms of its size and substance, which will mark a “historic turning point.”

He shrugged off the need to issue extra debt to fund the new defence programme, while pledging to do the utmost to achieve a budget surplus in the fiscal year ending in March 2026.

In contrast with steady progress on other tax talks, the ruling coalition stopped short of confirming when to implement the defence tax increases. They effectively put off the decision until next year because of stiff opposition to tax increases from within the LDP as Kishida’s popularity wanes.

“It will be implemented at “an appropriate time” from 2024 onwards,” Miyazawa told reporters on Thursday.

Under the plan, Japan would adopt a corporate surtax of 4%-4.5%, with a deduction of 5 million yen for small firms, while lowering reconstruction income tax to 1%, and imposing a surtax of 1% on incomes for the time being. The tobacco tax will also be raised in stages by 3 yen per cigarette.

Only 6% of all Japanese firms will be subjected to planned corporate tax increases.

As for tax revenue for the next fiscal year, Miyazawa said neither big tax raises nor cuts will be expected in fiscal 2023.

The ruling party officials vowed to ensure disaster reconstruction income tax receipts would not be reduced in supporting those who are suffering from disasters in the northeast, including Fukushima.

($1 = 137.4000 yen)

(Reporting by Tetsushi Kajimoto; Additional reporting by Takaya Yamaguchi, Yoshifumi Takemoto; Editing by Gerry Doyle and Jacqueline Wong)

By Elisa Anzolin

MILAN (Reuters) – Italian shipbuilder Fincantieri expects to increase sales in its naval business in the coming years as countries spend more on defence following Russia’s invasion of Ukraine, its new chief executive said.

Pierroberto Folgiero, who replaced long-serving CEO Giuseppe Bono in May, said Fincantieri stood to benefit from a number of security concerns.

“It is not just about defence but also trade security, monitoring of (underwater) energy infrastructure and migration issues, so we perceive encouraging signs of growing demand,” Folgiero told Reuters in a telephone interview.

Fincantieri unveiled earlier on Friday its new five-year industrial plan, which foresees the group returning to net profit in 2025.

Fincantieri, which is 70%-owned by Italian state-backed lender Cassa Depositi e Prestiti (CDP), makes a broad range of military vessels, including aircraft carriers, destroyers and submarines.

However, it is the company’s cruise business which contributes the bulk of revenues in its core shipbuilding unit.

The cruise business was hard hit by the COVID-19 pandemic, which halted new orders and forced the shipbuilder to extend delivery times.

However, in the last quarter Fincantieri saw the first signs of a resumption in cruise order intake. Folgiero said that part of the business was operating at full capacity and he wants to work on improving margins rather than chasing volume growth.

Folgiero also expects an increase in the demand for support vessels for the offshore wind sector, such as the cable-laying vessels built by Fincantieri’s unit Vard, as the energy transition drives demand for wind farms.

The smaller infrastructure business, which is a drag on group profitability, is not considered strategic.

“There are no synergies,” said Folgiero, adding that the priority for the infrastructure business was to overhaul it.

He said he saw no need for a capital increase to reduce high debt, which was at 3 billion euros ($3.2 billion) at the end of September. He said that better profitability and financial discipline should lead to a gradual deleveraging.

Fincantieri is also aiming to strengthen its collaboration with Italian defence group Leonardo at commercial level and to deepen their partnership in the joint venture Orizzonte Sistemi Navali.

Asked whether the group is still interested in Leonardo’s Oto Melara weapon business, put on the block last year, Folgiero said that Fincantieri “always looks at all strategic options”.

($1 = 0.9393 euros)

(Reporting by Elisa Anzolin; Editing by Keith Weir and Emelia Sithole-Matarise)

VIENNA (Reuters) – The European Central Bank’s message that it is serious about fighting inflation was a strong signal equivalent to a bigger increase in interest rates, ECB hawk Robert Holzmann said on Friday.

“It is a toughly hawkish statement that for me is equivalent to the 75 (basis-point increase previously suggested),” Holzmann told a news conference. The ECB raised rates by 50 basis points and signalled it would do the same at future meetings.

(Reporting by Francois Murphy; Editing by Hugh Lawson)