November 27, 2018 / 11:05 AM / in a year

ESM head not worried about Italy losing market access

FILE PHOTO: European Stability Mechanism Managing Director Klaus Regling attends a news conference at the Ministry of Finance in Nicosia, Cyprus November 2, 2017. REUTERS/Yiannis Kourtoglou/File Photo

LUXEMBOURG (Reuters) - The head of the euro zone bailout fund Klaus Regling said on Tuesday he was not worried about Italy losing market access amid a dispute with the European Commission on Rome’s expansionary 2019 budget, which the EU executive says breaks EU fiscal rules.

The European Commission took a first step last week to disciplining Italy over the budget after Rome refused to change it, raising the stakes in a dispute that has alarmed the whole euro zone and could eventually lead to fines.

Hopes that Italy was poised to curb its spending plans set off a rally in financial markets on Monday, with Italy’s benchmark bond-yield spread over the German equivalent falling to its tightest level in more than a month.

However, the Italian government said later on Monday that it was sticking to its main 2019 budget goals for now as it awaited a cost analysis of its main spending measures, but left open the possibility of eventually cutting its deficit target.

“Italy has problems. But they are not comparable to Greece for instance. So sometimes when I hear Italy is the new Greece ... that’s just nonsense,” Regling told reporters.

“The underlying fundamentals are much better in Italy than they were in Greece a few years ago. Italy has a current account surplus which means Italy does not need to attract capital from foreigners on a regular basis,” he said.

Asked if he was worried about a worst-case scenario of Italy losing market access if investors lose confidence in Italian public finances, Regling said: “The worst possible scenario is not the most likely one. I am not worried about Italy losing market access. I am more worried about the low growth we have seen in Italy for the past 20 to 25 years.”

Reporting By Michele Sinner, writing by Jan Strupczewski; editing by Francesco Guarascio

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