December 12, 2016 / 8:25 PM / 7 months ago

European Commission hints at leeway on aid for Italy's banks

STRASBOURG (Reuters) - The European Commission is ready to discuss with Italy several options to address problems in its banking sector, the vice president of the EU executive said on Monday, signaling state support would be viewed benignly under EU fiscal rules.

The Italian government is considering different options to rescue Banca Monte Paschi di Siena (BMPS.MI) if the bank fails to get the 5 billion euros ($5.3 billion) from private investors it needs to stay in business, a Treasury source said on Monday.

"We are in close contact with the Italian authorities and we are ready to discuss different solutions within our legal framework," Valdis Dombrovskis told the economic committee of the European Parliament in a regular hearing in Strasbourg.

Without a direct reference to Monte Paschi, he said that Italy's problems can be tackled within EU rules on state aid and on the so-called bail-in, a system that imposes losses on private investors before a public bailout.

Italy's third-biggest bank is pressing ahead with a last-ditch attempt to raise the cash in the market despite political uncertainty after Prime Minister Matteo Renzi's resignation following a Dec. 4 constitutional referendum.

But the government did not rule out a possible public intervention if the plan failed.

That would come with losses for private creditors, although it is still unclear how many investors would be affected.

The Commission said in November that Italy's 2017 budget is at risk of breaching EU fiscal rules due to excessive spending. The possible state support for Monte Paschi has triggered further doubts about Italy's compliance with the rules.

But Dombrovskis said on Monday that any state support for banks was likely to be treated as a "one-off expense", which would not affect Italy's debt and structural deficit.

Editing by Louise Ireland

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