The FTSE 100 (INDEXFTSE: UKX) hit the lowest levels for six months on Tuesday as fears over the Italian budget stand-off sucked the confidence out of European equity markets.

The FTSE 100 fell beneath 7,200 on Tuesday, the lowest level since mid-April.

Italy has set out a budget plan that equates to 2.4% of GDP, something that has been met by fierce resistance from Brussels and raised concerns among investors about the long term financial health of Europe’s 4th largest economy.

Despite pressure in Italian bonds and condemnation from European leaders, Italy have been unwavering in there commitment to the plan.

“We go ahead calm and responsible.”

“There are no plan B or backtracks. We are convinced that the planned budget measures will create jobs and wealth,” said Italian deputy Prime Minister Matteo Salvini.

The market has met the Italian resistance with the selling of Italian bonds. Yields in 10-year Italian bonds closed at their highest level since 2014 yesterday, yet the Italian administration seems unperturbed, heightening the risk of a financial shock.

“A spread at 400, 500? We are committed to making the spread reflect the fundamentals. If it goes to 500, the government will do what it needs to do.”

“If everyone sells, we will have capital outflows and we will have to face the situation. Faced with a financial crisis, the government will do what it must do, as Draghi did,” said economy minister Giovanni Tria.

Global rates are rising

Italy and their rising rates are not the only country causing angst among investors. US rates have soared above 3% in recent weeks leading to volatility in global equities, particularly emerging markets who are suffering capital outflows as investor reallocate to US treasuries.

In the UK, gilts are at the highest level for a year after recent BoE rate hikes and the promise of the UK government to halt years of austerity.