ROME Italy's government will seek parliamentary approval to hike national debt by up to 20 billion euros (£16.7 billion) to cover any eventual operation to stabilise the banking system, Prime Minister Paolo Gentiloni said on Monday.
Economy Minister Pier Carlo Padoan told reporters that the requested funds could be used to "guarantee adequate liquidity" in the banking system and also to boost capital at struggling lenders.
He declined to name what banks might need help, but the government is widely expected to have to step in to save Monte dei Paschi di Siena (BMPS.MI), which must raise 5 billion euros in capital by the end of the year or face being wound down.
Two sources told Reuters last week that the government was ready to pump 15 billion euros into the Siena-based lender and several other smaller banks to prevent a banking crisis in the euro zone's third largest economy.
Before that can happen, the government needs parliamentary authorisation to lift national debt levels and the cabinet prepared the written request on Monday. Gentiloni said it would be presented to parliament on Tuesday.
Padoan said the 20 billion euros -- which represents more than one percentage point of gross domestic product -- would weigh on 2017 finances.
"The money put forward in this operation will have an impact on debt, but it should be seen as a one-off, temporary measure, that does not therefore impact on structural adjustments," he said after a cabinet meeting.
"If these resources have to be used, the eventual repayment of the public finances and the debt will be spelt out and certified," he added, saying the operation would respect European Union rules.
(Reporting by Giuseppe Fonte; Editing by Crispian Balmer)