Risk of bank-debt link reigniting - IMF

Fund calls for 'credible and sizable consolidation' from Rome

(ANSA) - New York, October 10 - The International Monetary Fund (IMF) warned on Wednesday that problems regarding Italy's public debt and the nation's banks could return if the financial markets lose confidence in the government's fiscal policy. "If concerns about the budget policy should re-emerge on the market, the risk is that the link between the banks and the sovereign debt could reignite," the IMF said. "In such a scenario, the tensions on the market could spread to the bond markets in Europe, as happened in the eurozone crisis and, in a more limited way, in May".
    Vitor Gaspar, the director of the IMF's Fiscal Affairs Department, called on Rome to adopt a policy of fiscal consolidation. "Our advice on Italy has been constant for a number of years," Gaspar told a news conference. "The main aspect on the fiscal policy is that a credible and sizable consolidation over the medium term is necessary to safeguard public finances and to put the public debt-to-GDP ratio on a firm downward trajectory. "This is particularly important, given that it is very important for Italy to be in a position to respond effectively to downside risks in case those were to materialize. "It is also something that we highlight, that the soundness of public finances in Italy is also an important cornerstone for a financial stability in the country. "And we very much agree with all who think that growth has been disappointing in Italy for many years. And we see structural reforms, structural reforms in the labor market, structural reforms in the product and services market, as well as changes, for example, on insolvency procedures. "And public administration reforms are key elements in these structural reforms".