Euro still at risk without closer union - Italy central bank head

MILAN Sun Dec 1, 2013 10:14am GMT

The Governor of the Bank of Italy, Ignazio Visco, arrives at the G7 Finance Ministers meeting in Aylesbury, southern England May 10, 2013. REUTERS/Alastair Grant/Pool

The Governor of the Bank of Italy, Ignazio Visco, arrives at the G7 Finance Ministers meeting in Aylesbury, southern England May 10, 2013.

Credit: Reuters/Alastair Grant/Pool

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MILAN (Reuters) - The European single currency will remain at risk if Europe is not able press ahead with closer political and economic union, the governor of the Bank of Italy said in an interview published on Sunday.

Ignazio Visco told the Il Messaggero newspaper that a breakup of Europe's monetary union was a concrete threat back in 2011.

"Today it is a danger that in large part has been answered but the risk has not disappeared. Everything would be easier with more union," said Visco, who is member of the European Central Bank's governing council.

He said Europe's plans for banking union would be incomplete without greater budgetary integration among member states.

Asked about Italian banks, Visco said they still faced problems with non-performing loans which, stripping out writedowns already booked, totalled around 75 billion euros (62.3 billion pounds) and continued to absorb a large part of profits.

"If this were to continue... this condition of low profitability would end up weighing on the capital requirement situation and the market's evaluation of their ability to cope with possible macroeconomic risks...," he said.

Visco said the Bank of Italy's rigorous approach to regulation would continue. "The situation is certainly difficult but also thanks to these interventions Italy's banks, overall, will not find themselves unprepared for the tests scheduled in 2014."

A series of health checks on European banks is scheduled for next year ahead of a banking union that would put the European Central Bank in charge of policing lenders from late next year.

Visco said economic indicators in Italy pointed to a bottoming-out of the crisis. "Recovery, albeit timidly, has started to show itself," he said. But he added it was still difficult to make predictions on job creation.

(Reporting by Stephen Jewkes; editing by Mark Heinrich)

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