MILAN, July 20 Political instability could
undermine Italy's ability to exit its longest post-war
recession, the head of the country's central bank said on
"This is a critical phase," Bank of Italy governor Ignazio
Visco told a Moscow meeting of ministers and central bankers
from the Group of 20 nations.
"There is a stability issue, also from a political point of
view, which affects the (country's) ability to pursue
opportunities for recovery," Visco said according to quotes
provided by his spokeswoman.
A failure to kick-start the Italian economy could dent
Rome's chances of cutting a public debt which, at 130 percent of
gross domestic product, is the second biggest in the euro zone
The government survived a no-confidence motion against the
interior minister on Friday, averting a crisis which could have
brought down a fragile coalition formed only three months ago.
The Bank of Italy forecasts a contraction of Italian gross
domestic product of 1.9 percent this year and expects a timid
recovery to start at the end of the year.
Visco sounded more upbeat about the health of the Italian
financial system but asked the country's lenders to further
boost their capital base.
The results of a stress analysis conducted by the
International Monetary Fund at the beginning of this year
"showed the resilience of the Italian banking system against
external shocks", Visco said.
"Of course capital base is fundamental and needs to be
enlarged, but there are no sign of excessive concern" for the
country's financial system, said the central banker.
The Bank of Italy forced the country's lenders to raise
their provisions against bad debt some months ago as the long
recession translates into an increasing burden of problematic
loans for the banks.
The recent decision by Standard and Poor's to downgrade
Italy's sovereign rating to 'BBB' was not consistent with the
country's fundamentals, Visco said.
(Reporting by Francesca Landini and Alessandra Prentice;
Editing by Mark Potter)