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08 February 2020Italian financial markets "are benefiting for the moment from the drop in political uncertainty" with a drop in the spread but "the vulnerability linked to the medium-term prospects of public finance and economic growth has not yet been defeated". This was stated by the governor of the Bank of Italy Ignazio Visco at Asiom Forex, underlining how the BTP / Bund spread at 140 points, "remains almost double" in Spain and Portugal. "To achieve a higher stable expansion path - he continues - we need economic policies that look beyond the annual horizon of the public budget".

Visco estimates that Italian GDP "bears significant downside risks", noting that the institute's projections "foreshadow a still very low growth" this year but were made before the preliminary Istat GDP figure for the fourth quarter which saw a drop of 0.3%. Visco therefore cited the "geopolitical tensions", Brexit and "the possible repercussions of the spread of the new Coronavirus". And precisely on the epidemic that broke out in China, he warns: "We are evaluating the impact of Coronavirus on the Italian economy, it is difficult to estimate the effects", but considering the precedent of Sars, "it could" be temporary and contained "to" a few tenths of a GDP. "But he added," a more significant impact "due to the growth of China's weight in recent years cannot be excluded.

Visco: On the domestic front, the benefit of the drop in political uncertainty is benefiting, but the vulnerabilities of the medium-term perspective of public finance remain. # ASFX20 @bancaditalia pic.twitter.com/ljKh3BOJ8h

- ASSIOM FOREX (@ASSIOMFOREX) February 8, 2020
The Governor then dwells on the thorny chapter of banking supervision. The action of the Bank of Italy "even on small banks is intense" - he underlines - "without managerial will or connivance". And he adds: "It is conducted within the scope of the powers assigned to the supervisory authority and in full respect of the nature of the banking business as well as the provisions of the law".

Small and medium-sized banks, which suffer most from the crisis of the traditional business model, can benefit from mergers, explains Visco. If it is true that "the traditional model of banking activity has now reduced returns" and that "small and medium-sized banks are particularly affected, which are struggling to strengthen balance sheets due to the impact of costs and difficulties in accessing the market capital "then" requires substantial economies of scale and purpose to finance the real economy profitably, "said the governor.

All intermediaries, he added, "must continue with determination" the restructuring and adaptation process, but "initiatives aimed at increasing the operating scale of small banks through concentration operations or with greater integration of activities can bring benefits to the extent that they reduce the incidence of costs, expand and diversify revenues, increase the ability to compete on the market ", concluded Visco.