ECB’s Visco Says Italy Must Spend EU Money Well, Cut Debt Burden

(Bloomberg) -- Italy must spend its recovery fund money well to create growth and reduce its debt burden, Bank of Italy Governor Ignazio Visco said.

“Italy’s debt is sustainable, the issue is the burden of debt,” Visco, who also serves on the European Central Bank’s Governing Council, said in a Bloomberg Television interview with Francine Lacqua on Friday. “I’m confident on the fiscal side, the real problem has been the ability to grow.”

Italy is set to receive up to 209 billion euros ($245 billion) from the European Union’s recovery fund. Prime Minister Giuseppe Conte’s administration is drawing up plans for how to spend the funds. Draft guidelines seen by Bloomberg indicate the government is seeking to double growth and raise employment by 10 percentage points in the long-term, bridging the gap with European peers.

Italian debt is seen expanding close to 160% of output this year. The government’s worst case scenario sees gross domestic product down 10.5% in 2020 and expand only 1.8% in next year.

ECB support and government stimulus have helped the Italian economy, and Visco said the bank has “observed better data than expected for the third quarter.”

ECB efforts to keep borrowing costs low have allowed Italy to spend 100 billion euros in stimulus on its battered economy. The yield on Italian 10-year bonds has more than halved since the peak of the pandemic in mid-March.

Visco said ECB support has helped the European economy and it is important to “consider the conditions under which it will be safe to exit.” He said it will be a topic for the Group of 20 summit, which Italy will be hosting next year.

“We will not be back to a pre-Covid situation for a couple of years at least,” he said.

©2020 Bloomberg L.P.