VENICE (Reuters) - Global economic and market conditions are worrying and a renewed slowdown could threaten the sustainability of public debts in Europe and elsewhere, Bank of Italy Governor Ignazio Visco said on Saturday.
“The European and global economic outlook and financial market conditions are daunting,” Visco said in a speech to the Council for the United States and Italy in Venice.
“A new global economic slowdown would pose additional risks to already fragile financial systems and threaten the sustainability of public debts, in Europe and elsewhere,” he said.
He added that the political deadlock in Greece and difficulties in the Spanish banking sector were aggravating tensions in markets and increasing uncertainty.
Euro zone finance ministers were due to meet on Saturday to discuss a bailout of Spain’s banks, lumbered with bad debts from a burst property bubble.
Visco urged leaders of G20 countries and emerging economies to pursue policies aimed at boosting growth.
He said support from monetary policy, such as the European Central Bank’s cheap 3-year loans which helped calm markets earlier this year, was also essential but only temporary.
“A complete exit from the crisis will be achieved only if all actors properly shoulder their responsibilities,” he said.
Visco said the crisis that has plunged Italy into recession and that sent its borrowing costs spiralling to record levels last year was still serious and urged Mario Monti’s government to press on with economic reforms.
Italy is the world’s fourth largest sovereign debtor.
“For Italy, the emergency is not over,” Visco said. “Preserving and sustaining fiscal responsibility is essential, even if at the cost of some short-run difficulties,” he said.
Visco, who is also a member of the ECB’s Governing Council, reiterated his call for common oversight of Europe’s banks, even if it means “a shift of some elements of national sovereignty.”
“The reform of economic governance must be accelerated, in order to break the linkage between sovereign risk and bank risk,” he said. Banks have been major buyers of euro sovereign bonds, once widely regarded as ‘risk-free’ securities.
Visco urged European countries to take steps towards fiscal and financial union, and warned that monetary union was difficult to sustain without appropriate governance.
The general manager of Italian bank UniCredit (CRDI.MI), Roberto Nicastro, also said on Saturday that Italy would not resist proposals for a political and banking union requiring nations to cede more sovereignty in order to stabilise the euro bloc.
“Italy is more oriented to accept this passage. We see resistance from other countries and not necessarily only in Germany,” Nicastro said.
He backed the idea of creating a joint deposit guarantee and a bank resolution fund. “But this cannot be done without a centralised surveillance of all banks,” he told a conference of young entrepreneurs.
Reporting by Jennifer Clark; Writing by Catherine Hornby; Editing by Ruth Pitchford