NEW YORK (Reuters) - A top Bank of Italy official said on Tuesday that the European Central Bank will do what is needed to help Europe fight a deepening economic slowdown and the crisis in the region’s sovereign debt markets.
Bank of Italy Director General Fabrizio Saccomanni, in New York for meetings with investors, declined to comment on specific monetary measures that the ECB could take when its policymakers meet on Thursday.
But, he said, “we are confident that the ECB will do what is required in the present situation, also looking at the outlook for the European economy, which has deteriorated since the last meeting (of the board).”
Since ECB President Mario Draghi, formerly No. 1 at Bank of Italy, hinted that the central bank might consider some kind of action if policy makers agree on a “fiscal compact” for the single currency area, investors have bet on a more aggressive monetary stance rose.
Italy’s announcement of a package to reach a balanced budget in 2013 increased speculation that some kind of easing would be forthcoming by the ECB.
With 1.9 trillion euros in government debt, equal to around 120 percent of its gross domestic product, Italy become in recent months the fulcrum of a deep debt crisis that raised the prospect that the European 17-nation single currency could fail.
Saccomanni dismissed as exaggerated the fears of a euro zone break-up, saying that “member countries are now doing what is required to cope with the situation.”
“There is the desire to put the crisis behind us,” he said ahead of a European Union leaders’ summit on Thursday and Friday to discuss more fiscal discipline in Europe.
Saccomanni is due to meet U.S. Treasury Secretary Tim Geithner on Wednesday in Milan. “We would like to have endorsement by the U.S. government about the fiscal consolidation program ... and to see what kind of role the IMF can provide in this field.”
With expected gross issuance by Italy of new debt in 2012 of about 440 billion euros, it is vital both for the government and for the country’s economy to bring yields down sharply from their 7 percent peak of a week ago.
Saccomanni, who is the Bank of Italy’s second-highest official, said whether Italy’s economy grows or contracts next year will depend on several factors, including how financial markets react to the package of measures approved by the government -- led by new Prime Minister Mario Monti -- on Sunday.
Italy’s government has said it sees 2012 GDP falling between 0.4 and 0.5 percent in 2012.
Saccomanni said Italy’s slowing pace of lending growth would not lead to a credit crunch for Italian companies. “I do not think that a credit crunch is a problem in Italy. According to ECB surveys, there are some indications that some companies expect a deterioration of credit conditions, but a credit crunch is a much more severe condition.”
Asked about the announcement on Monday by Standard & Poor’s that it could cut the ratings of 15 euro zone countries, he said the ratings agency “is probably overstepping its role.” He said that the news was adding to ongoing uncertainty and keeping some investors holding cash.
“S&P is looking at the political and psychological climate that is now dictating the debate in Europe more than at the fundamentals” Saccomanni said.
Saccomanni also said Italian banks have no major capital requirements and that, according to the latest stress tests carried out on European lenders, a further 15 billion euros was needed, half of which was linked to Unicredit (CRDI.MI) which has already approved a 7.5 billion-euro capital increase.
Editing by Padraic Cassidy