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markets

Italy's Euroskeptic Market Regulator Favors European Safe Asset

Italy's Euroskeptic Market Regulator Favors European Safe Asset

Paolo Savona

Paolo Savona

Photographer: Giulio Napolitano/Bloomberg
Paolo Savona
Photographer: Giulio Napolitano/Bloomberg

Paolo Savona, the euroskeptic who heads Italy’s market regulator, made a surprising admission on Friday: he supports a call by the European Central Bank to create a so-called European safe asset.

In a speech in Milan, Savona said low-risk financial instruments that investors could hold instead of sovereign bonds could significantly contribute to financial stability. They would possibly be issued by the European Stability Mechanism.

“The only safe asset in Europe now is Germany’s Bund,” Savona said. It’s managed by one country while the demand comes from all countries in the monetary union, he said, calling this “a factor of instability in the euro zone’s financial system.”

Savona, whose nomination to run Italy’s finance ministry was vetoed last year by President Sergio Mattarella because of his extreme euroskeptic views, said an insufficient supply of Bunds pushes liquidity toward U.S. Treasury Bills.

The ESM could use the proceeds to make loans to member states, Savona said, adding that the proposal doesn’t need to be linked to stricter regulation for sovereign debt holdings in banks.

ECB Vice President Luis de Guindos last month called for exploration of a low-risk financial instrument, an idea Executive Board member Benoit Coeure had previously raised. The concept has been opposed by countries such as Germany, which fear they’ll end up paying for others’ bad debts.

Savona said that more “rational” fiscal rules on member countries’ debt would help reduce market jitters as current regulations favor speculation on bonds from high-debt countries like Italy.

— With assistance by Daniele Lepido, and Carolynn Look