MNI SOURCES: Italy Industrial Plan Lays Ground For ECB QE End

By Silvia Marchetti

     ROME (MNI) - Italy's government has launched a strategic new industrial

plan to prepare the ground for the end of the European Central Bank's

asset-purchase program, government officials told Market News.

     "We need to pursue a path of anti-cyclical economic policies that boost

investments and create new jobs. It is paramount that we have a backup plan for

when the ECB's quantitative easing comes to its natural conclusion," said Mauro

del Barba, a Democrat member of the Senate's Budget Committee.

     The only way to do so is by continuing with accommodative policies at

national level that may further consolidate growth, argued Del Barba, and the

timing is crucial. 

     "We must do this now before the ECB starts unwinding its policy, thus

depriving Europe and by extension all members of a significant growth stimulus,"

he said.

     When the ECB's drivers slow down, Italy will have less fiscal capacity to

support the recovery, he added. The 2018 budget, with its increased deficit

spending for future years, already takes this QE-free scenario into account,

noted Del Barba.

     --FUTURE PLANNING

     The industrial plan, launched recently by Economic Development minister

Carlo Calenda, focuses on long-term public and private investment. It proposes

to continue allocating state resources towards corporate innovation and enhanced

competitiveness. It also looks to further the development of a technology-savvy

workforce, able to face globalization challenges.

     The plan notes that support for investment, finally seeing a revival from

post-crisis levels, must not slow down during the recovery phase.

     A reinforced E2.5 billion investment fund should be guaranteed over the

next two years, according to the plan, alongside E175 billion earmarked through

2030 to reinforce Italy's energy self-sufficiency, along with financial support

for the 17,000 export-centric firms behind the 'Made-In-Italy' product lines.

     Such an ambitious plan would also be need Brussels to grant Rome greater

fiscal flexibility this year and to avoid possible negative repercussions on the

economy due to the March election's high instability risks.

     "Italy has enormous industrial potential and therefore needs a solid,

long-term plan to tackle key business challenges. This, together with the Narrow

Path strategy of balancing growth and fiscal targets, are the two ingredients to

achieve sustainable growth," said a source at the Italian Treasury.

     --HEADWINDS BUILDING

     According to the plan, 2018 could be testing year for Italy's economic

recovery, as a mix of potentially destabilizing factors converge.

     The QE stimulus end, the risk of a tougher austerity stance at EU-level and

tighter ECB rules on bank non-performing loans could all add up, weighing on the

recovery.

     The current government, still functioning despite the upcoming election, is

thus preparing an "offensive" roadmap, looking to "heal the country with the

adequate amount of antibiotics before it is left alone to move on its own legs

without QE or further fiscal leeway," explained Del Barba.

     But with Italy is heading towards a general election and an uncertain

outcome, Rome's incumbent government hopes that no matter which political party

wins, it will continue along the same path and not change the country's recent

economic policy which, they feel, has helped fuel the recovery.

     "Italy's recovery, despite the progress made, is still fragile and the

wounds of the economic crisis are yet to fully heal," warned Del Barba. 

     He remains concerned over the potential economic risks of a government led

by an alliance between the Lega party and the anti-establishment 5-Star

Movement.

     "I don't expect these parties to pursue policies in continuity with the

past simply because their actions must abide to promises made to voters, and so

far they pledge to undo most pro-growth reforms introduced by the Democrat

cabinet," Del Barba said.

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

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