Italy Won’t Seek to Cancel Debt Purchased by ECB, Minister Says

A senior Italian government minister pushed back against a controversial call for the European Central Bank to wipe out or hold forever government debt it buys during the pandemic, saying Rome is committed to treaties that rule this out.

Vincenzo Amendola, Italy’s minister for European affairs, said in an interview with Bloomberg Friday that the government’s official position calls for sustainability and reduction of public debt, pouring cold water on a proposal from a Five Star Movement coalition partner.

“We work with current treaties and with current treaties this is not possible,” Amendola, of the center-left Democratic Party, said at his Rome office. “Italy honors its debts and works to reduce public debt through growth.”

Italy Won’t Seek to Cancel Debt Purchased by ECB, Minister Says

Five Star’s Riccardo Fraccaro, a cabinet undersecretary and close aide to Prime Minister Giuseppe Conte, told Bloomberg on Nov. 26 that monetary policy makers must support member states’ expansionary fiscal policies “in every possible way.” That includes canceling sovereign bonds bought during the coronavirus pandemic or “perpetually extending their maturity.”

Italy’s debt burden is seen nearing 160% of output this year, one of the world’s highest, as economic activity plunged and public spending surged to protect jobs and businesses. With sluggish growth even before the pandemic, and further costs ahead linked to lockdowns to stem the spread of the virus, the country faces an even deeper fiscal hole.

ECB President Christine Lagarde had said before Fraccaro’s remarks that wiping out debt “would simply be a violation” of the law. Bank of France Governor Francois Villeroy de Galhau last week rejected suggestions that the ECB should consider writing off government bonds purchased during the pandemic, saying it would be “a very dangerous path.”

Amendola said the administration is on track to draft investment projects for Italy’s share of the European Union’s recovery fund. He dismissed criticism from lawmakers inside and outside Conte’s government, and from employers’ association Confindustria, that preparations are taking too long.

Final agreement on the fund and the EU budget has been blocked by Poland and Hungary, who refuse to link disbursements to adherence to democratic standards. The rest of the bloc is plotting to carve out a stimulus plan that excludes them.

“The only delay in Europe today is due to Poland and Hungary’s veto which is dramatically affecting the European schedule,” Amendola said.

“I am very pragmatic,” he added. “Poland and Hungary have signed an accord, which was negotiated with the European Parliament. I think this is a fair deal, rule of law is Europe’s ID card all over the world and that’s not up for debate.”

Italy is set to receive as much as 209 billion euros from the recovery fund in grants and loans. Yet, if that fiscal hoard, swelled by central bank-backed cheap borrowing, is spent unwisely there could be no feasible way to reduce debt.

©2020 Bloomberg L.P.

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