Italy's bank association tells parties to back reforms

ROME Wed Oct 31, 2012 12:58pm GMT

Italian Prime Minister Mario Monti speaks at the annual forum of the European School of Management and Technology (ESMT) in Berlin June 13, 2012. REUTERS/Thomas Peter

Italian Prime Minister Mario Monti speaks at the annual forum of the European School of Management and Technology (ESMT) in Berlin June 13, 2012.

Credit: Reuters/Thomas Peter

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ROME (Reuters) - Italy's main banking association urged politicians campaigning for next year's election to respect budget pledges made to European partners and to back reforms.

The comments follow a threat on Saturday by former Prime Minister Silvio Berlusconi to withdraw the parliamentary support of his People of Freedom party (PDL) from the government led by technocrat Mario Monti.

"All those who are candidates to lead the country should remove any doubt about their firm adhesion to the public finance targets established in European meetings and to the areas which have marked the action of the Monti government," Giuseppe Mussari, president of the Association of Italian Banks, told a banking conference in Rome on Wednesday.

Campaigning is beginning in earnest ahead of parliamentary elections expected in April, with the electorate in an angry mood after repeated tax hikes and spending cuts.

Mussari said any signs of uncertainty on the issue would hamper a fall in interest rates paid by Italian companies and families and delay economic recovery.

Berlusconi's threat was implicitly rejected by moderates in his party, who said the PDL would continue to back Monti's government. But it added to the already high degree of political uncertainty ahead of the April election.

Financial markets appeared to have shrugged off Berlusconi's comments with a successful auction of 5- and 10-year Italian bonds on Tuesday that took borrowing costs to their lowest level since May 2011.

Yet record abstention levels and a strong vote for the anti-establishment 5-Star Movement in local elections in Sicily at the weekend have highlighted the risk that next year's election could produce a weak and fragmented government without a strong mandate.

Mussari's comments were followed by Bank of Italy Governor Ignazio Visco who told the conference that any government would have to stick to reform commitments.

He said the European Central Bank's pledge to intervene to help countries in difficulty would only work if governments did their part.

Budget discipline had to be accompanied by structural reforms to the economy or it would risk being "counterproductive", he said according to the text of a speech at a conference in Rome.

"But reforms cannot take full effect if doubts and uncertainties over the future of the single currency were to keep sovereign spreads above levels consistent with the economic fundamentals of each country," he said.

"Monetary policy can be an effective buffer against these distortions. But the benefits will be sustainable only if budget discipline and national and European reforms are pursued with the necessary resoluteness."

(Reporting By James Mackenzie; Editing by Ruth Pitchford)

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