MILAN Italy does not at the moment need to ask the euro zone's rescue funds to buy its government bonds in the markets to bring down borrowing costs, Bank of Italy Governor Ignazio Visco and Cabinet Undersecretary Antonio Catricala said on Sunday.
Chances that Rome will have to tap the European Financial Stability Facility (EFSF) or its successor the European Stability Mechanism (ESM) in future will depend largely on Italy's budget and reform efforts, Visco told Repubblica daily.
Visco, who sits on the European Central Bank's governing council, also said the economic situation in Italy and in the euro zone remains so difficult that a "looser monetary policy can be envisaged in the coming months".
Asked if Italy should ask for EFSF/ESM help Visco said: "For the moment it seems to me there is no need.
"Looking ahead, it will depend on several factors. If the markets convince themselves a turning point was passed, if Italy does not abandon fiscal discipline and steps up its efforts to promote growth, then there will be no need for a rescue fund intervention. Much depends on ourselves."
Burdened with 2 trillion euros of debt and in the grip of recession, Italy has seen its debt costs track Spain's higher as Madrid struggles to retain market access amid budget troubles.
Prime Minister Mario Monti told German weekly Der Spiegel on Sunday that what he needed from Germany and the EU was moral support, not financial help, and added that he was concerned about growing anti-euro, anti-German and anti-EU sentiment in the parliament in Rome.
However, he also called for Germany and the EU to "cut some slack for those countries who are following European guidelines precisely". He did not elaborate on what he had in mind.
"I'll stay in office if all goes according to plan until April 2013, and I hope that I can help rescue Italy from financial ruin with moral support from some European friends, especially Germany," Monti said.
Monti lobbied his euro zone partners in June to set up a "flexible and efficient" mechanism to intervene in bond markets to stabilize yields. He has since hinted that Rome may be interested in using this instrument, when ready, to cope with the mounting market pressure on Italian bonds.
While the implementation of ESM is blocked until September pending a German High Court ruling, on Thursday ECB President Mario Draghi indicated the ECB may start buying government bonds in cooperation with the euro zone bailout funds - but not before September, and only if countries ask to use the euro zone rescue funds and accept strict conditions and supervision.
Both Spain and Italy have baulked at requesting help from the funds because of those strict policy conditions, but Visco said it was only realistic that strings should be attached.
"I find it perfectly logical that a country asking for assistance to cool down its borrowing costs should accept a list of binding conditions, and I also understand that the euro zone does not want to use up its ammunition without clear guarantees," he said.
Cabinet Undersecretary Antonio Catricala hinted that Italy will not ask for EFSF/ESM intervention before a request from Spain, which is under much more intense market pressure.
"If we were to move first, the others would consider us mad. The situation of our public finance is much better than that of many other (euro zone) countries," he told Corriere della Sera.
Catricala and Visco nevertheless acknowledged that markets are taking time to recognize the austerity steps taken by Italy's technocrat government, and that the future remained challenging for Rome and for the whole euro zone.
"The emergency is not over at all," said the Bank of Italy governor, adding that Italy would remain in recession in 2013 after a sharp economic contraction forecast for this year.
He said that, with euro zone growth prospects weakening, the ECB may in the next few months cut interest rates, reintroduce unconventional measures such as bond purchases and extra-long refinancing operations for banks, and accept looser rules on collateral. Italy, meanwhile, will have to accelerate its reforms, Visco said.
(Reporting by Francesca Landini; Editing by Gavin Jones and Catherine Evans)