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Italy should consider seeking European Stability Mechanism credit support in addition to funds made available under the European Union's EUR750 billion rescue package, a top European Central Bank official said Monday, stressing the need for structural reform if the deal, and an "ambitious" EU budget agreement, are to mark a "turning point" in European integration.
The past few months "might look like the start of a new phase in European integration," Executive Board member Fabio Pannetta told La Repubblica," but the extent to which that is true will depend on the economic policies of individual countries, including Italy.
"Italy bears a great responsibility," Panetta said. "The EU has given Italy access to significant credit. Now the country must show it's capable of using that European funding to address the structural weaknesses in its economy."
An "objective, informed" debate on whether or not Italy should take advantage of additional loan support available from the European Stability Mechanism is also necessary, Panetta said, "especially in the light of the ongoing risk of a second wave of infections."
The cost of financing Europe's economy is in the process of "normalising," Panetta said, thanks in large part to the ECB's pandemic bond buying and refinancing operations, which it is estimated will produce a cumulative increase of 0.8 percentage points in inflation and 1.3 percentage points in GDP by the end of 2022.
Recent economic data showed signs of progress, he said, "but we need to view these improvements with caution, because they are an effect of the rebound that was to be expected after the earlier disastrous fall in economic activity and reflect the large-scale intervention of economic policies. Moreover, they don't diverge from our forecasts. So they don't give us sufficient grounds for satisfaction."
Panetta expects the ECB to use the whole of the €1.35 trillion currently allocated to it "unless there are significant upside surprises, although he said the programme was working well. "I don't see any economic reasons to change our decisions or actions."
A source of concern was the effect on banks of the recession persisting, with Panetta anticipating both a sharp deterioration in credit risk and a resurgence of impaired and bad loans. "We need to kick-start the economy quickly," he said, "before we find ourselves in that situation. For this reason too the measures decided by the ECB are of fundamental importance."