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Visco rejects austerity budgets to cut national debt

Bank of Italy head says falling rates show 'renewed interest'

25 March, 16:43
Visco rejects austerity budgets to cut national debt (ANSA) - Pavia, March 25 - Bank of Italy Governor Ignazio Visco said Tuesday that boosting economic growth should be the government's main tool for cutting the country's massive public debt, rather than applying austerity budgets. "It's necessary to focus on the growth of the real economy, and therefore a recovery of investments," he said in a speech at the Almo Collegio Borromeo cultural institute in Padua.

Visco also suggested that focusing on "structural reforms" in the Italian economy which aim at "rebuilding competitiveness are essential to the country's economic recovery". Some policy coordination with the European Union "could help define" that path, "but the responsibility of the reforms ultimately rests with Italy," he added.

Premier Matteo Renzi has been following such a path as he tries to give the economy an extra boost with proposed new measures that include about 12 billion euros in personal and business tax cuts, new investments of 1.74 billion euros in social housing and 3.5 billion euros on schools, as well as a massive repayment of 68 billion euros on outstanding government bills to business.

But he has insisted that his program would not cause Italy to breach the 3%-deficit-to-threshold allowed by the EU although the 2014 budget could raise this year's ratio forecast "from 2.6% to 3%". Italy must be careful to avoid breaching it, as it did in 2009.

The European Commission subsequently opened an excessive-deficit procedure against Italy, obliging it to divert public money into trying to reduce that ratio.

It was taken off the procedure last year after bringing the ratio below 3%.

The EC has warned that it would be monitoring Italy's macroeconomic imbalances and efforts by the eurozone's third-largest economy to reform these, as it keeps a watchful eye on Italy's huge debt to GDP ratio of about 133%. Renzi has also pledged a reorganization of Italy's labour market to try to deal with a jobless rate of almost 13% on average and more than 42% among youth.

Meanwhile, Visco noted that a decline in Italian interest rates, narrowing the spread with the German benchmark rate, demonstrates "renewed signs of interest in Italian markets, including that of government bonds".

The lower rates are also partly attributed to investors feeling more confident in the euro area as a whole.

Visco also said that the Italian economy is not in a state of deflation even though price pressures have been on a steady decline. The country's annual inflation rate remained flat at 0.7% in January, the same as December and November and the lowest level since November 2009, national statistics agency Istat said in its most recent estimates of price pressures.

At the start of 2013, inflation was more than triple that, coming in at 2.2%.

Italy's long recession has dampened price rises.

A two-year run of negative growth ended in the third quarter of 2013, when GDP was flat with respect to the April-June period. It then rose 0.1% in the final quarter.