Sicily governor denies region at risk of default

ROME Wed Jul 18, 2012 7:53pm BST

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ROME (Reuters) - The governor of Sicily Raffaele Lombardo said on Wednesday his region was not at risk of default after Italian Prime Minister Mario Monti raised concern over the sustainability of the island's finances.

Monti said in a statement on Tuesday that there were "grave concerns" Sicily could default and that he had written to Lombardo seeking confirmation he would resign by the end of the month.

On Wednesday Monti met with President Giorgio Napolitano to discuss the region's finances, according to a government source.

Lombardo said at a news conference on Wednesday he would confirm his plans to resign when he meets Monti on July 24 but denied his region was on the brink of financial collapse.

"The news that Sicily is in default is false," he said, adding that it was in similar financial shape to other Italian regions and in a better situation than the heavily indebted Italian state.

An Italian government source also told Reuters later on Wednesday that Sicily was not at risk of default.

"The problem is not structural but a temporary lack of liquidity, which has been resolved by an already planned transfer of 400 million euros," the source said.

Monti's highly unusual intervention put the spotlight on Sicily, which accounts for around 5.5 percent of Italy's gross domestic product and which has an unemployment rate of 19.5 percent, almost twice the national level.

After a decade of steady deterioration in its finances, the island has some 5.3 billion euros ($6.50 billion)in debt, a record of waste and inefficiency and an outsized public service that critics say is used by local politicians to buy votes.

The Corte dei Conti, Italy's main public finance audit body, has been harshly critical of fraud, waste and inefficiency in the regional administration, describing the ever mounting debt burden as "a pathological phenomenon".

In a report in February this year, it described practices ranging from overpaying for goods and services which sometimes never materialised, chronic absenteeism, inflated travel and consultancy costs and an out-of-control health service plagued by high costs and poor management.

Several politicians on Wednesday urged Lombardo to resign immediately.

"Lombardo, it's time to end the agony of your government that risks dragging the whole of Sicily into the abyss along with the credibility of Italy," said MP Tonino Russo from the centre-left Democratic Party.

Ratings agency Fitch said on Tuesday it saw no immediate risk the region would default. It rates Sicily at BBB+ with negative outlook, one notch below Italy's sovereign debt rating.

A government source told Reuters on Tuesday that Monti had used the warning of a default to raise pressure on Sicilian authorities to cut spending. ($1 = 0.8154 euros)

(Reporting By Wladimiro Pantaleone and Giuseppe Fonte, writing by Catherine Hornby; editing by Ron Askew)

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