MNI: BOI Visco: Italy Must Address Public Debt To Avoid Crisis

--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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