REPEAT: MNI SOURCES: Italy Econ, Debt To Weather ECB QE End

Repeats Story Initially Transmitted at 07:10 GMT Jan 30/02:10 EST Jan 30

--Italy Debt Longer Maturity Profile Also Post-APP 'Buffer': Govt Official

--No CenBank Concern Over Potential Higher Rates: BOI Source

By Silvia Marchetti

     ROME (MNI) - The eventual end of the European Central Bank's asset purchase

program (APP) will not negatively impact Italy's economic performance nor its

public debt sustainability, a senior government official told MNI in exclusive

comments. 

     "We are very optimistic that Italy will be prepared and quickly adapt to a

QE-less scenario thanks to a brighter economic outlook and to its declining

public debt," said Luigi Marattin, economic and finance adviser to prime

minister Paolo Gentiloni.

     "If the current fiscal stance is maintained -- envisaging growth at 1.5%

for this year, a 3% debt cost and inflation rising again to levels below but

close to 2% -- when QE will likely terminate in September, Italy will be able to

fully cope with the change," he said. 

     Marattin dismissed fears that the end of the QE and thus higher interest

rates could trigger a rise in debt costs and in the yield spread between Italian

and German bonds. According to the official, the main reassuring factor against

such a backlash post-APP was the downward trend in Italy's public debt. 

     "This is the most important thing we need to look at: investors aren't

really concerned whether public debt is high, but if it's sustainable. Recent

data and projections indicate the debt reduction rate is accelerating and this

is what reassures markets at the end of the day," said Marattin.

     --MATURITY PROFILE HELPS

     He also noted that the average maturity of Italy's debt, currently about 7

years, is another advantage that will help soothe eventual interest rates and

yields spread spikes when the ECB will terminate the APP. 

     "Even if there were such a spike, which I deem unlikely, it would not be

overnight but spread-out across a relatively long 7-year period which extends

and strengthens debt sustainability," argued Marattin. 

     Italy debt maturity profile would thus act as a sort of "buffer" against

potential sovereign shocks in the APP's aftermath, he argued.

     The debt-to-GDP ratio can still be reduced even if rates were to rise, he

said, as this would only gradually affect the average cost of the debt while

consolidated growth is the real key to cutting debt. 

     For the first time in years Italy's debt seems to be on an overall downward

trend. Rome's government has made progress in tightening public finances as the

European Commission watchdog requests greater orthodoxy. 

     -BOI UNCONCERNED 

     The government recently revised its fiscal targets. Debt forecasts have

been cut to 130% this year from a previous 131%, to 127% in 2019 from 128.2%,

and to 123.9% in 2020 from previous 125.7%. 

     According to a Bank of Italy source, "there is no reason to be concerned"

as to what will happen in a future APP-less scenario.

     "According to our estimates, inflation in Italy is set to slightly recover

over the next two years mainly thanks to an improvement in wages, and growth

will further consolidate," said the source.

     The central bank recently upped GDP forecasts to 1.4% this year from a

previous 1.3%, and to 1.2% in 2019 and 2020. Over the next two years prices in

Italy are expected to increase by a yearly average of 1.5%, reflecting stronger

growth in wages. 

     "We've said this before: an increase in interest rates, if consistent with

the improved economic situation, is fully sustainable for the Italian economy.

The debt service capacity of households and firms should remain strong even if

borrowing costs rise considerably," said the source. 

     Above all, he noted, recent analyses conducted by supervisory authorities

indicate that Italian banks and insurance companies have little exposure to the

risk of an interest rate rise. 

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