Lorenzo Codogno, ex-chief economist at the....>

ITALY: Lorenzo Codogno, ex-chief economist at the Italian Treasury and MNI

Connect Board Member, sees Italy entering Excessive Deficit Procedure (EDP) by

end-Jan 2019 (following excerpts taken from a LC Macro Advisers note today):

- The EC deficit estimate for Italy in 2018 is 1.9% of GDP, a 0.0pp improvement

in structural terms relative to 2017 and compared to the promised 0.3pp

adjustment. This, in itself, would be enough to push Italy into EDP.

- The EC's GDP growth forecasts may yet prove optimistic on several fronts: H218

growth; financing conditions; exports...Once interest rates start moving up and

economic growth slows, there will be a boomerang effect on the debt ratio.

- With update to the 126(3) report on the debt on 21 Nov, the Commission will

make the first step to move Italy into EDP, followed by reports/committees.

- By the end of January, Italy will be in EDP but the time allowed to prepare

correction plans (likely 3-6 months) will permit Italy to reach European

elections unobstructed. Then nothing will effectively happen until the new

Commission is in office, i.e. Oct/Nov 2019.

-`The true guardians of fiscal discipline will be, as usual, financial markets.`