MNI: Italy Needs Self-Imposed Debt Restructuring Plan: Expert

--Italy Must Put Debt Plan In Place To Boost Market Credibility: Caselli

By Silvia Marchetti

     ROME (MNI) - Italy needs a "self-imposed" debt restructuring plan to help

boost its credibility on world markets, but the ongoing uncertainty and

political stalemate makes it impossible, delaying the task at hand, Stefano

Caselli, finance professor at Milan's Bocconi University told MNI.

     Caselli argued that Italy should promptly define "on its own and without

any external pressure" a credible plan to restructure its bloated national debt

to boost sustainability levels before it is too late, hinting that there was a

risk that "others" could step-in to push things along.

     "Now we all know there are two kinds of debt restructuring. The Greek one

and the self-imposed one," Caselli said.

     "These are very different, with enormous consequences. We must seriously

hope that the Greek plan, imposed in the past by the European institutions

forced to intervene due to Athens' inaction, is never applied to Italy," he

said.

     --'ITALIAN-STYLE' PLAN

     A softer, more applicable debt reduction strategy for Italy's government

would be to "autonomously decide to reorganize parts of the structure of its

debt with the ultimate goal of significantly curbing it," he added.

     Tackling soaring debt with a hawkish strategy is turning into a hot

political debate. A growing number of economists in Italy recently called for an

Italian-style debt restructuring plan, with some suggesting that in order to

appear as an "inclusive rather than exclusive move" other member states across

the European Union should follow on and address their own debt levels.

     According to recent Bank of Italy data, public debt climbed to E2.2865

trillion in 2017. Italy's debt remains the second largest in volume in the

eurozone, despite the significant efforts of the outgoing Democrat government to

stabilize it. 

     Caselli suggested that one possible debt restructuring fix could be to

monetize the country's vast public real estate holdings, worth up to E650

billion. The estate comprises both state lands and buildings, most of which are

"frozen assets" that could be instead exploited either through 50-years leases

or disposals at auction to international investors.

     Another tool the government could exploit are treasury bond listings. "This

is by far a much stronger and efficient way. The state could ask bond holders of

its debt to accept longer maturity dates, or partial pay-backs of the invested

capital in exchange for, for instance, lower tax rates that would encourage bond

holders to continue financing the Treasury," said Caselli.

     Either way, what Italy needs is a "targeted, well defined public debt

reduction roadmap that sets out clear objectives over a specific period of

time," he stressed.

     --NOT IMMINENT

     Such a task, far from being close at hand, appears impossible at present. 

     "To do a serious, spontaneous debt restructuring you need to have a stable,

functioning and well-performing government that does its homework. You need a

credible actor on the stage, able to win market confidence. And that is

currently absent. Plus, we have no idea when a fully operating new cabinet will

take-over," argued Caselli.

     Italy's 2-month long political stalemate deepened this week after parties

failed to reach a political agreement over a possible governing coalition. If

there is no convergence on a technical government, the chances of a fresh

election will firm up. In a worst case scenario, a fresh vote could take place

in July, thus the approval of the next budget.

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

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