Italy must get private savers buying public debt again, bank boss says

MILAN (Reuters) - Italy should attract more private savings into government bonds to help it sustain high spending to fight the coronavirus crisis and ideally bring home some of the tens of billions of euros parked abroad, the head of Italy’s biggest retail bank has said.

FILE PHOTO: Carlo Messina, CEO of Intesa Sanpaolo bank smiles during shareholders meeting in Turin, Italy, April 27, 2017. REUTERS/Giorgio Perottino

In an interview with Il Sole 24 Ore daily on Saturday, Intesa Sanpaolo ISP.MI CEO Carlo Messina urged the Treasury to issue "bonds with social purposes" aimed at ordinary Italians, offering "competitive yields, tax breaks, a legal shield against prosecution to repatriate money stashed abroad".

Messina said Italian savers held around 100-200 billion euros (£87.4 billion-£174.9 billion) in savings outside the country.

“Now the time has come to bring them back. This way their owners could prove they believe in their country,” he said.

He also suggested Italy could enable a portion of the 26 billion euros that employers put aside every year for future severance packages to be invested tax-free in government bonds.

Italy expects its national debt this year to reach 155.7% of gross domestic product, the highest level since World War Two, pushed by the massive deficit-spending needed to fight one of the world’s worst outbreaks of COVID-19.

Messina said the government was doing what it could, but public debt was the crucial issue.

“We must be a virtuous country that respects the no.1 rule: debts must be honoured,” he said.

Large-scale purchases of Italian bonds carried out by the European Central Bank through the Bank of Italy at present limit Italy’s debt costs, which would soar if investors worried about Rome’s ability to service its debt pile.

Banks raise funding at a premium to government bonds, so Italian lenders are at a disadvantage because of the comparatively higher yields on Italian debt compared to countries such as Germany that are considered lower-risk.

Any widening in the yield gap between Italy and Germany also hurts the value of Italian banks’ holdings of domestic debt, which in turn eats into their capital reserves.

Messina said Italy had room to lift the share of public debt held by small savers to 10-20% of the total from 5% at present.

Ordinary Italians have been reducing their holdings of domestic debt because of low yields. A source close to the matter has told Reuters the Treasury is studying ways to spur demand from retail investors.

Reporting by Valentina Za; Editing by Kevin Liffey