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MNI (London)
--Visco: Infla Confidence Up, Gradual Normalization
     ROME (MNI) - The Italian economy is gaining strength, employment continues
to recover, and some of the sources of systemic risk in the banking system have
been eliminated, but more more needs be done and that Italy needs to curb public
debt to stave-off the risk of a potential financial crisis, Bank of Italy
governor Ignazio Visco warned Tuesday. 
     "To consolidate the results achieved, accomplish further progress, and
remove structural fragilities, we must press on with the reform agenda," he
said.
     "The protection of savings, necessary to support economic growth, hinges
upon orderly conditions in the financial markets. These, in turn, rely on the
credibility of the policies to revamp the structure of the economy, enhance
productivity and keep public debt in check."
     Debt reduction remains paramount. "It must be stressed once again that
there are no shortcuts for cutting debt. A large portion of the financial
savings accumulated by Italians can be directly or indirectly traced backed to
the E2.3 trillion that make up our public debt. If the value of their wealth
were to be imperilled, they would react by fleeing and seeking shelter
elsewhere. And foreign investors would follow suit even more rapidly. The
financial crisis that would ensue would put us back significantly. It would
taint Italy's reputation forever", Visco warned.
     Italy must be a respected voice in Europe, including in the debate on
redesigning the EU's regulatory and institutional set-up, he added. However, he
made no direct comments on the current political crisis sweeping Rome.
     Addressing monetary policy, Visco also said that current European Central
Bank normalization must be gradual in order to absorb future rate hikes.
     "The improved economic situation has strengthened the ECB Governing
Council's confidence in the convergence of inflation towards the objective and
has created the conditions for a gradual recalibration of monetary policy
measures", said Visco, delivering the concluding remarks of the bank's 2017
annual report in Rome.
     "Uncertainty about the future performance of inflation means we must
proceed with caution. So far, the recalibration of measures has occurred without
creating the tensions on financial markets or surges in long-term yields feared
by several observers".
     The normalization of monetary policy conditions in the euro area, he added,
will reflect the gradual consolidation of economic activity and of the inflation
outlook. This will make it easier to absorb future interest rate increase, Visco
argued.
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
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MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com