- Italy urgently drafting post-Brexit ‘attractiveness’ package
- Government stands ready to act on banks with EU if needed
Italy is working on a package of measures including fiscal reforms to attract foreign investors and businesses and to lessen the impact of the U.K.’s vote to quit the European Union.
Tommaso Nannicini, Prime Minister Matteo Renzi’s undersecretary for economic policy, said in an interview in Rome on Friday that the U.K. Brexit referendum may have an impact on Italy’s gross domestic product although it was too early for any estimates.
“We had thought of measures before Brexit, now we could be bolder,” Nannicini said of what he called an “attractiveness package” to draw business to Italy. “This package could be accelerated now; it depends in part on how fast the relationship between the U.K. and the EU changes.”
Italy is slowly recovering from its longest recession since World War II. The Bank of Italy said in its quarterly economic bulletin on Friday that the country’s economy may grow slightly less than 1 percent this year, trailing most euro-area countries, and around 1 percent next year.
“We will be able to insert some measures in the forthcoming budget law but we might also present policies that do not involve new public spending earlier in the year,” according to Nannicini.
“The package would focus on fiscal reforms and less bureaucracy for visas, similar to the non-domicile residence status in the U.K., with special visas for people who come and invest in certain types of activities, and incentives for investments in start-ups and research and development,” Nannicini said.
Measures in the government package would also focus on making funding mechanisms for new or existing businesses “more fluid, less bank-centric, liberalizing the secondary capital market,” Nannicini said.
Nannicini played down concerns over the Italian banking industry which sent shares in lenders tumbling after Brexit, with the government in talks with the European Commission to try to tackle bad loans without breaching EU rules that require investors to share losses.
“The government stands ready to act if something is needed in collaboration with the EU,” Nannicini said. “Our banking system is solid. We are aware that we have a problem of a stock of non-performing loans which is the product of a prolonged economic crisis that has hit the Italian economy much more than other countries.”
The government would use “whatever means are needed” in the face of market turbulence or any risk of systemic shock, he said.
Italy’s economic difficulties are compounded by its debt. Italy owes creditors 2.2 trillion euros, or more than 130 percent of GDP -- a ratio higher than any euro-area country’s other than Greece. The Italian government has pledged to reduce the debt-to-GDP ratio, but this is at risk given low economic growth.
“The projection that we would reverse the growing trend of public debt is based on a fiscal stance, which continues to see fiscal consolidation as one of the main goals of our economic policy, even if that is slower than what Italy planned a few years ago,” Nannicini said.
“Macroeconomic contingencies” imply that the path, but not the commitment, to fiscal consolidation had “slightly changed,” Nannicini said. “Yet, for the ratio of debt to GDP to fall, you also need growth and moderate inflation.”
The Bank of Italy said risks for the country may increase if financial market tensions spread, if difficulties emerge for the banking system and if business and household confidence is impacted.