Italian growth surged much more than reviously reported in the first quarter, ISTAT said Thursday as Economy Minister Pier Carlo Padoan asked the European Union for a substantial discount in next year's budget-deficit-to-GDP ratio.
Meanwhile Padoan reached a provisional deal with EU authorities on the restructuring of troubled Tuscan lender Monte dei Paschi di Siena (MPS), Italy's third-biggest and the world's oldest bank.
ISTAT on Thursday revised sharply upwards its first-quarter growth estimates from 0.2% to 0.4% over the previous quarter and from 0.8% to 1.2% on the same quarter of 2016, the statistics agency said. ISTAT said the surprise revision was due to a better-than-expected performance by the service sector. Italy's estimated 1.2% GDP growth in the first quarter of the year is the highest since the fourth quarter of 2010, ISTAT said.
Italy's acquired GDP growth for 2017 is already 0.9%, ISTAT said, revising upwards its estimate from 0.6%.
Italy's revised 0.4% quarterly GDP growth and 1.2% year-on-year growth takes it off the bottom of the European growth table. Germany is top with 0.6% and 2.9% respectively but France is like Italy in quarter-on-quarter terms (0.4) but worse on an annual basis, 1.0%. But Italy remains below the eurozone average of 0.5% and 1.7%.
Premier Paolo Gentiloni reacted to the better-than-expected growth figures by tweeting: "estimates for 2017 revised upwards.
Italy is growing more than expected and the hard work is continuing". The latest better-than-expected growth figures are good but "not enough", former premier Matteo Renzi said. The Democratic Party (PD) leader said the figures "are the result of years of serious and rigorous work we now have behind us. "But I'm not satisfied because I know it's not enough. "The only road is AHEAD, continuing to lower taxes, simplifying the system and encouraging the country's real entrepreneurs".
Organisation for Economic Cooperation and Development Secretary-General Angel Gurria replied to an ANSA question on the better-than-expected Italian growth figures by saying it was "very good news". He said "Italy has emerged from negative numbers and has now entered on a growth path", adding that now it is more than ever necessary to resolve the fragilities of the Italian banking system.
Economy Minister Pier Carlo Padoan said the better-than-expected first-quarter GDP growth figures give "good hope to definitively emerge from the economic crisis". He said they also brought hope of more robust short and medium term growth.
Padoan on Thursday also asked the EU for a nine-billion-euro discount on Italy's budget for 2018, ANSA has calculated. This is the amount resulting from a reduction from 0.8% to 0.3% in the deficit cut next year. As a result, only six billion more would be enough to avert an automatic 25% hike in VAT as part of the so-called 'safeguard clauses" currently envisaged, several sources told ANSA.
Padoan wrote to the European Commission Thursday outlining a 0.3% structural deficit cut, instead of the 0.8% originally requested, and the stabilisation of the debt/GDP ratio in 2018, sources said. He was communicating "the scope of the adjustment deemed adequate in light of the public finances of our country, also in light of the reform effort that has been continuing uninterrupted for several years". An EC spokesman said it had received Padoan's letter replying to last week's recommendations but had no comment to make.
The European Commission will use its "margin of appreciation" on Padoan's requested 0.3% cut in the budget deficit next year, Economic and Financial Affairs Commissioner Piere Moscovici said. He said the EC would reply to the request "at the opportune moment".
Moscovi said the EC was "at Italy's side and would assess the budget situation in light of the new growth figures.
Padoan and European Commission Vice President Valdis Dombrovskis spoke of the Monte dei Paschi di Siena bank restructuring provisional deal and Italy's 2018 budget plans on the sidelines of the Brussels Economic Forum Thursday. "Happy to meet Pier Carlo Padoan on the margins of the Brussels Economic Forum. We welcomed the in-principle accord on MPS and discussed the preparation of the 2018 budget," tweeted Dombrovskis.
European Competition Commissioner Margrethe Vestager on Thursday reached an in-principle deal with Padoan on a restructuring plan for struggling MPS, to permit a precautionary recapitalisation of the Tuscan lender in line with EU rules, the European Commission said.
Also in line with EU rules, some of the costs of restructuring MPS will be borne by shareholders and junior bondholders, the EC said.
Retail bondholders may request compensation in case of misselling, it said, while deposit holder are protected.
Monte dei Paschi di Siena will have its entire portfolio of non-performing loans at market conditions, reducing risks to finances, the Commission said. At the same time, MPS will take a series of measures to substantially boost its efficiency including a ceiling on managers' salaries, equal to 10 times the average salary of MPS staff, the EC said. The in-principle deal reached on MPS between the EU and the Italian Treasury depends on the European Central Bank's (ECB) confirmation that MPS is a solvent bank which respects capital requisites, as well as Italy's obtaining a formal confirmation from private investors that they will take on its portfolio of non-performing loans, the Commission said. Now the EC and the Italian authorities must define the details of MPS's final restructuring plan, including Italy's commitments on implementing the plan. ON this basis, Brussels will adopt a formal decision in line with EU rules on State aid, the EC said.
The EC said the preliminary and provisional deal was reached thanks to "constructive talks with Italy".
Sources in Brussels said that "the financial projections and cost control were the two main talking points" but "all the chapters" in the negotiations "have been closed". As for selling the non-performing loans, the sources said there is already a "high level of tranquility" on the prospect of private investors buying the NPL portfolio, but that in any case the EU prefers to wait for the formalisation of that purchase.
The deal with the EU "will give further confidence to the solutions for banking problems which have very often been exaggerated, and which with today's results will be further taken into consideration and put in perspective," Padoan said. Another "positive consequence" of the provisional deal, he said, is that "it will put on the credit market a strong, stable and sustainable bank which will give a hand to Italian development over the coming years".
The accord has "resolved all the issues" of the troubled Tuscan lender, Padoan said. "Over time it will require an adjustment on the costs side but it will be able to count on a very strong capital base because at this point MPS is a bank cleaned of its NPLCs, with a capital well over requirements", he said, adding that the Italian State will "remain in the capital for the duration of the restructuring plan but the goal is to remain the least time possible, even less than five years".
In other news Thursday, Open Society Foundations chief George Soro, the Hungarian-American financier, told the Brussels Economic Forum that Italy's banking and migratory crises are today "the most dangerous threat" to the European Union. The EU, he said, is going through an "existential crisis", but the recent victories of pro-EU candidates in the Dutch and French elections have given it fresh "impetus". Now the EU must be "saved" and "reinvented radically", said Soros.
ALL RIGHTS RESERVED © Copyright ANSA
