Visco Says No Signs Italy Spreads to Require ECB Action 

Italy’s widening bond spreads aren’t worrying and won’t require intervention from the European Central Bank, Governing Council member Ignazio Visco said.

(Bloomberg) — Italy’s widening bond spreads aren’t worrying and won’t require intervention from the European Central Bank, Governing Council member Ignazio Visco said.

“There are no signs really that it should rise in a territory that will require us to intervene,” the Italian central bank chief told Bloomberg TV. If central bank intervention were needed, “I think we can” do so, he said Friday in Marrakech.

Italy’s 10-year yield premium over Germany rose five basis points, breaching 200 basis points for the first time since Tuesday. Such moves will keep ECB officials on alert, fellow Governing Council member Gabriel Makhlouf told Bloomberg this week.

The spread has been widening since Italy revealed its budget deficit is only likely to fall within European Union limits in 2026 — a year later than previously envisaged.

Shortfalls of 5.3% and 4.3% of gross domestic product this year and next will allow Prime Minister Giorgia Meloni to cut taxes on wages and keep other promises to voters.

“My impression is that while fiscal prudence is necessary — for the next years, there is nothing we can do really to increase our fiscal space except in better composition of expenditures,” Visco said. “We can grow more, and that is the main reason why I think markets are worried, the ability of the Italian economy to grow.” 

In its latest economic bulletin published on Friday the Bank of Italy predicts that the country’s economy will grow just 0.7% this year, 0.8% next year and 1% in 2025 due to high interest rates and slowing global trade. Inflation however, is seen improving slowing to 2.4% next year and 1.9% in 2025.

UniCredit Chairman and former Finance Minister Pier Carlo Padoan, though, brushed aside the recent bad news.

“I’m not worried about becoming a citizen of a ‘sick man of Europe,’ because I know that Italy can react very forcefully and is actually reacting more than markets seem to understand in terms of potential growth going forward,” he said in an interview.

“Investments and reforms are the way to growth and Italy has that opportunity through the use of Next Generation EU funds,” he said. “It’s a matter of showing the markets that the effort translates into results, and if they recognize that it’s value making for them.”

Complicating matters are Italy’s latest budget plans, which Fitch Ratings has said represent “significant” loosening of fiscal policy relative to previous goals.

“What has happened with the increase in spreads for Italian bonds, for me, it’s a clear indication how we should be prudent in all the policies we implement, including the fiscal policy,” Lithuanian central bank Governor Gediminas Simkus said later.

“I see this jump in spreads more as a reflection of the draft budgetary law and the new numbers that were revealed,” he told Bloomberg TV. “From our from monetary-policy perspective, that’s a factor we should take into account when taking decisions. But I don’t see a risk from the perspective of fragmentation.”

Italy isn’t the only euro-area nation struggling to meet EU fiscal rules: France will have a deficit of 4.7% this year and Spain of 4.1%, forecasts compiled by Bloomberg showed. But spending and low growth aren’t the sole hurdles faced by Meloni.

“My main worry is geopolitical,” Visco said. “Uncertainty looms great and even before the incredible attack by Hamas to Israel, it was already visible.”

–With assistance from Alexander Weber and James Hirai.

(Updates with new Bank of Italy forecasts in the seventh paragraph.)

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