Italy's debt manageable, no need for ECB - debt chief

BRUSSELS Fri Nov 9, 2012 4:21pm GMT

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BRUSSELS (Reuters) - Investors are returning to Italy, allowing it to comfortably service its large debt and avoid seeking help from the euro zone's bailout fund, the head of the country's debt agency said on Friday.

The European Commission warned this week that Italy's public debt would rise to 128 percent of economic output next year, second only to stricken Greece in Europe, while Rome's efforts to bring down the budget deficit could stagnate in 2014.

But Italian borrowing costs have fallen sharply since European Central Bank chief Mario Draghi pledged in July to do whatever it takes to save the euro and later said the bank would buy unlimited quantities of bonds of states that request help.

"There is no question about the sustainability of our debt, even with a higher yield," Maria Cannata, the director general of Italy's public debt management, told Reuters in an interview.

"Italy will not approach the ESM," she said, referring to the euro zone's permanent bailout fund that countries must tap in return for ECB help. "We do not expect the ECB to buy Italian bonds. It is absolutely not on our horizon."

Just a few months ago Italy, the euro zone's third-largest economy, was a key focus of the bloc's debt crisis, with its borrowing costs reaching levels considered unaffordable over the long haul. However, the ECB's pledge has dramatically calmed concern the euro zone might break up.

Cannata said British, Nordic and U.S. investors had gradually returned to Italian debt since the ECB announced its bond-buying programme on September 6. In a sign of confidence, they were moving into longer-term paper from short-term bills.

"We have already started to reduce short-dated issuance, in particular T-bills," she said during a visit to Brussels.

"Right now, demand from investors is focused on five- to seven- year bonds," she said.

She said Italy aimed to lengthen its debt maturities.

"We are waiting for the right moment to launch a new benchmark, 15-year bond," she said.

Italy remains in better economic and financial shape than Spain, but the Commission said on Wednesday Italian output would contract 0.5 percent next year after a 2.3 decline in 2012.

Italy's deficit will ease only to 2.1 percent next year without a policy shift, and would remain there in 2014, the Commission said.

(Editing by Nigel Stephenson)

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