MNI INTERVIEW 2: Italy Debt Exposed To External Shock

By Silvia Marchetti

     ROME (MNI) - An external shock leading to an increase of only two

percentage points in Italy's debt-to-GDP ratio could trigger a debt crisis, as

bond markets come under pressure from nervous investors, the director of the

Public Accounts Observatory at Milan's Catholic University told MNI.

     Carlo Cottarelli, a leading economist and former IMF official who was

briefly prime minister designate in 2018, dismissed immediate concerns that the

country's technical recession could spark a debt crisis, but warned of

vulnerability to a future external shock.

     "A crisis means debt is no longer sustainable, Cottarelli said. It would

only take a 2% rise in the debt to GDP ratio for Italian bond markets to suffer

a loss of confidence, he said.

     "The issue is not predicting these [potential shocks], but equipping the

Italian economy with adequate buffers to absorb shocks, which are currently

lacking," he said.

     But he minimised the potential fallout should the European Central Bank

fail to provide a widely-expected round of fresh cheap funding for banks,

pointing to ample liquidity in financial markets and continuing eurozone growth,

albeit at a slower pace: "Even if there were no fresh round of targeted

longer-term refinancing operations and at some point interest rates were raised,

it wouldn't be an issue."

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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

[TOPICS: MAIDS$,M$E$$$,M$I$$$,M$X$$$,MC$$$$,MT$$$$,MX$$$$,M$$FI$,MGX$$$,M$XDS$]