Visco Says Italy Must Show Debt Sustainability Amid Low GrowthLorenzo Totaro and Sonia Sirletti
Italy has to show it can sustain a 2.09 trillion-euro ($2.88 trillion) public debt as it emerges from its longest recession since World War II, European Central Bank Governing Council member Ignazio Visco said.
“Our country’s real budgetary constraint is the need to guarantee the public-debt sustainability and to keep full access to financial markets,” Visco, who is also the Italian central bank governor, said today in a speech in Pavia, Italy. “In a context loaded with tension, it doesn’t take much to destroy investor confidence.”
Visco also said that Italy’s debt of more than 130 percent of gross domestic product, Europe’s second-biggest by that measure, means the country has to sell about 400 billion euros of bonds and bills every year. Market tensions due to the region’s crisis led in 2011 and 2012 to a fall of the country’s debt held by foreign investors, Visco said. In December that share was 34 percent of the total, the central bank said this month.
Italy expects to issue a total 450 billion euros of debt this year, 120 billion of which has been already allocated, the country’s debt agency head Maria Cannata told reporters on March 21. That estimate may need to be revised upward depending on the forecasts and targets the government led by Prime Minister Matteo Renzi will include in its economic and budget plan due to be published by April 10.
First Quarterly Gain
The euro region’s third-biggest economy expanded in the three months through December, marking the first quarterly gain in more than two years. Italy will expand 0.7 percent this year and 1 percent in 2015 as the economic pick-up is driven by foreign demand and an increase in investments, the Bank of Italy said in a Jan. 17 report.
Italian bonds have rallied this year on optimism the euro-area economy is recovering from the sovereign-debt crisis. Italy’s 10-year yield fell last week to 3.37 percent, the lowest since October 2005. The additional yield investors demand to hold Italian 10-year bonds over similar-maturity German bunds slid to 173 basis points on March 11, the least since June 2011.
Visco said today that Italy’s lower debt-financing costs “reflect in particular the abatement of risk of a euro-area breakup.” He added that the European single monetary policy can ensure stability only if the economic fundamentals and the region’s institutional framework are consistent with it.
Visco added that “there are still risks and tensions can start up again,” according to his speech.
The governor of the Rome-based central bank played down the concerns over Italy’s ability to meet the euro-area rules that will require countries over the debt limit of 60 percent of GDP to hit an annual reduction target equal to one-twentieth of the excess.
The rule will be applied to Italy “starting from 2016” and “will not require budget adjustments of 40 to 50 billion euros annually as some commentators maintain,” the governor said in today’s speech. He said that in order to meet that rule “it won’t be necessary to reduce the nominal debt” and “it would be sufficient to keep the structural balanced budget” and a growth “close to nominal 3 percent.”
The government could start reducing its debt in 2014 through the sale of stakes in companies such as the country’s postal service and civil air-traffic manager Enav SpA.
Italy could raise as much as 9 billion euros from a first round of privatizations, former Finance Minister Fabrizio Saccomanni told lawmakers in February. His successor Pier Carlo Padoan said in a March 22 speech that the government is weighing a new privatization plan and wants to speed up the process for the sale of stakes already announced.