MNI SOURCES: Italy Aims To Benefit From Backing Eurogroup Head

--FM Padoan Withdrawal, Centeno Support, Could Earn Italy Political Credit Ahead

--Italy To Aim For Less Stringent NPL Rules, Banking Union Progress 

By Silvia Marchetti

     ROME (MNI) - Italy's government hopes to have bought some political capital

to help deal with upcoming Brussels battles following its support for the new

Eurogroup President, officials told Market News.

     Sources close to the government stressed that the nomination  -- and

subsequent election -- of Portugal's Mario Centeno was made possible only after

Italy's economy minister, Piercarlo Padoan, dropped out of the race. 

     Padoan's name had circulated as one of the leading contenders for the

high-profile role, but, due to the looming end of his domestic mandate, he

decided not to pursue election. 

     Now, Rome hopes to somehow cash in on his stepping back. 

     "It is crucial to take into account that consensus for Padoan was so wide

across the union and that Italy's government was forced to renounce to his

nomination due to the election timing. This gives us a political credit and

increases Italy's influence on the European stage," said Democrat deputy

Giampaolo Galli, member of the Lower House budget committee. 

     In future, Rome might look for pay back over its support to Centeno. "Our

move makes us stronger, gives us a sort of bonus to pursue our interests on

various thorny issues,", said Galli. 

     --BANK UNION PROGRESS

     Banking Union progress could be one such area where Italy may find

increased support for its stances. "There is a higher possibility of moving

against the European Central Bank's introduction of more binding rules on the

stock of non-performing loans sitting on banks balance sheets," said Galli.

     Galli noted Rome has long opposed higher capital buffer requirements for

bad loans, arguing it would stifle credit flows to the real economy, noting the

concern that the ECB would want lenders to reduce the stock of NPLs "overnight".

     Against this, Berlin has been pushing for stronger banks across the union

as a prerequisite for the completion of the banking union, the common deposit

guarantee scheme that increases financial burden and risk sharing among member

states. These opposing positions have led to a stalemate in moving the Banking

Union forward. 

     Galli said another field Italy may pursue would be to "avoiding placing a

way too restrictive limit on the amount of government bonds held by banks and

putting an end to the zero-risk era of sovereign securities", again both

required by Berlin to further banking union talks. 

     Italian banks have large stocks of sovereign bonds in their portfolios,

among the highest levels in the eurozone. 

     However, Galli argued that the political bonus could not be used to push

for greater fiscal flexibility from Brussels. 

     --GROWTH AGENDA

     A government source noted that supporting Centeno to the helm of the

Eurogroup had strengthened the European Socialists' power and further pursuing a

more growth-focused EU agenda.

     "We're happy that a pro-growth, progressive and socialist leader like

Centeno heads the Eurogroup, plus one coming from a southern Mediterranean

country politically close to Italy," said the official. Italian premier Paolo

Gentiloni had been lobbying lately to shift European power politics in favour of

the European Socialists (PES) to counterbalance the excessive role of the

European People's Party (EPP).

     The European Parliament, Commission and Council are all led by EPP leaders:

Antonio Tajani, Jean-Claude Juncker and Donald Tusk. Hawkish, pro-austerity EC

Vice President Jyrki Kaitanen is also from the EPP. 

     Democrat deputy Lia Quartapelle, head of Italy's Lower House Foreign

Affairs committee, noted that lobbying for Portugal was a natural option "given

it has one of the last remaining centre-left governments left in Europe, leaving

aside the French one of Emmanuel Macron which is weakening". 

     "For sure, the last we wanted was a populist at the helm of the Eurogroup,"

she said. 

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

[TOPICS: MFIBU$,M$E$$$,M$I$$$,M$X$$$,MI$$$$,MT$$$$,MFX$$$,MGX$$$]