Italy Gets ECB Pushback on Debt Idea, Told to Sort Out Finances
Italy Gets ECB Pushback on Debt Idea, Told to Sort Out Finances
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Italy came in for further criticism from the European Central Bank on Wednesday, with policy makers rejecting the idea of a debt guarantee and renewing warnings about excessive debt.
ECB Vice President Luis de Guindos said the lesson from Italy’s run-ins with the European Commission over its spending plans is that it should stick to the European Union’s budget rules.
When tensions between Italy and the commission ease, spreads on its government bonds narrow, and they widen when tensions increase, De Guindos told reporters in Frankfurt at a presentation of the ECB’s semi-annual Financial Stability Review.
“The lesson is quite evident -- it’s very important to respect fiscal rules,” he said.
Italy’s rightist League party, the dominant partner in the ruling coalition, hasn’t been hurt at home by disagreements with the EU. It won a rousing victory in European Parliament elections at the weekend and Deputy Prime Minister Matteo Salvini said he’ll devote his energy to changing the EU’s “old and obsolete rules.”
One idea mentioned has been for the ECB to directly underwrite government debt. Finland central bank governor, Olli Rehn, a contender to replace Mario Draghi as ECB president later this year, rejected the notion.
It’s “not a surprise that I’m not very fond of this particular idea as it goes against the principle of modern central banking,” Rehn said at a Reuters event in London.
Italian bond yields soared relative to other EU nations last year after a spat between the populist coalition and the commission over the nation’s budget. Despite eventually reaching an agreement, Italy is again involved in a standoff as it waits to see whether Brussels proposes a penalty of as much as 3.5 billion euros ($3.9 billion) over Italy’s failure to rein in debt.
In its Financial Stability Review, the ECB flagged sustainability of government debt as one of the key risks facing the euro-area financial system, along with corporate debt and low bank profitability.
--With assistance from Fergal O'Brien and Kati Pohjanpalo.
To contact the reporters on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net;Paul Gordon in Frankfurt at pgordon6@bloomberg.net;Brian Swint in London at bswint@bloomberg.net
To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Iain Rogers, Catherine Bosley
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