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Italy central bank chief warns on rising borrowing costs

Italy central bank chief warns on rising borrowing costs

Bank of Italy Governor Ignazio Visco said on Wednesday that families and firms would suffer if borrowing costs stayed high, and called on the government to ensure fiscal stability.

In a keynote speech in Rome, Visco said rising government bonds yields in recent months would cost the state some 5 billion euros next year if they did not retrace, with a knock-on effect on Italy’s huge public debt.

Rome is locked in a tussle with the European Commission over an expansionary 2019 budget which raises the planned fiscal deficit to 2.4 percent of gross domestic product from 1.8 percent this year. Brussels says it breaks EU rules.

“Italy’s public debt is sustainable, but there must be a clear determination to keep it that way,” Visco said, in comments that seemed aimed at the ruling coalition that took office in June.

“Uncertainties over Italy’s convinced participation in the European Union and the single currency must be dissipated,” he added.

The Commission last week rejected Italy’s budget, saying it flouted a previous commitment to lower the deficit and would push up the country’s debt, already the second highest in the euro zone as a proportion of GDP.

The EU executive gave Rome three weeks to present a new budget, but the government says it has no intention of changing its plans.

(Reporting by Giuseppe Fonte, writing by Gavin Jones; editing by John Stonestreet)