The Italian government must continue along....>

ITALY: The Italian government must continue along a path of fiscal adjustment to

consolidate credibility and reassure investors, despite being offered some

protection from future tighter future monetary policy by the lengthened maturity

profile of its current debt, a senior Bank of Italy source told MNI in exclusive

comments (For full story, see MNI Main Wire at 12:45 BST 05/17).

- By December of this year, medium and long-term securities amounting to E134bln

will reach maturity, with a further E201bln set to mature in 2019.

- Their roll-over on low coupons will depend on both favourable market

conditions and investor confidence in Italian debt sustainability, the source

argued. Three key risks: lower than expected economic growth; fiscal policy

deviating from set path; if the current primary surplus drops.

- Re ECB policy tightening impact, "There is a safety headroom that acts as

buffer for a potential rate hike impact. Even if the new rates (on new bonds)

increase by 2 percentage points, overall debt cost will not rise. In the worst

case scenario, it would just slow down in the pace of decline but would still

keep at stable levels," the source added.