MNI EXCLUSIVE: Italy Mulls Ambitious Plan To Rebuild Economy

By Silvia Marchetti

     ROME(MNI) - Italy is already considering an ambitious financing and

investment plan to rebuild the country once the coronavirus emergency is over,

and is set to take advantage of bond yields which remain low despite their

recent surge to further boost fiscal spending in the meantime, governing party

sources told MNI.

     "We can afford our spending plans as long as we need to raise money. Yields

are good for now and we are on a sustainable path," said a source with the

populist 5-Star Movement. Officials from 5-Star and their coalition partners in

the Democratic Party and Italia Viva declined to give any estimate of additional

spending, saying that the damage to GDP from the epidemic, which has led to a

country-wide shutdown, was still impossible to evaluate, and that spending

measures would be announced as they become necessary.

     Another new stimulus package could come as early as next month, said the

sources.

     The European Commission has indicated it will allow eurozone states to

exceed debt limits as they respond to coronavirus. But the sources said the

European Central Bank must also move immediately to boost its quantitative

easing programme, as it promised March 12 when it said it would expand its QE

envelope by EUR120 billion. After this, the ECB should also raise the limits

imposed on its purchases of individual eurozone countries' bonds, they said.

     --NO ESM

     Italy's government is not asking for the ECB to buy its shorter-term bonds

bonds on the secondary market under its Outright Monetary Transactions rules,

and is not interested in seeking help from the European Stability Mechanism, the

sources said.

     "The ESM is a crisis management tool and if we open up the ESM funds, it

would be sending a destabilising message to markets of a potential EU-wide

catastrophe," said a 5-Star source, noting that a country must already be

subject to an ESM programme to qualify for OMT.

     Italy has earmarked roughly EUR25 billion to tackle the emergency, together

with loan guarantees for affected companies and a moratorium on loan and

mortgage payments.

     Most of the governing party sources, except for the small Italia Viva

party, were damning in their criticism of ECB President Christine Lagarde, who

has apologised for saying that it was not the ECB's job to defend bond spreads

in her press conference last week. The EU's response in general has been quite

disappointing to Italy, the 5-Star and Democratic Party officials said.

     "It's pretty clear that despite the announced QE boost and some weak EU

coordination, every country is left pretty much alone to fend for itself. This

crisis just proves how EU fiscal rules are fragile and inefficient in the

absence of a European common fiscal capacity or safe debt assets, and that each

country is free to spend what is deemed as necessary in times of need," said the

5-Star source.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: M$X$$$,MT$$$$,MX$$$$,M$$EC$]