FLORENCE, Italy (Reuters) – Economy Minister Giovanni Tria said on Saturday the current spread between 10-year Italian and German sovereign bonds was damaging, but added that domestic lenders were not in danger “for now”.
Italian banks, which hold about 375 billion euros ($426 billion) of the country’s government bonds, are paying the price for a jump in sovereign borrowing costs triggered by market fears over the ruling coalition’s big-spending budget plans.
Tria said the spread between benchmark Italian and German paper, which has more than doubled since March to above 300 basis points, was being hit by political uncertainties rather than worries over the deficit-hiking 2019 budget.
“The spread at these levels is harmful. Nobody can say the opposite. The question is how we make it go down,” Tria said. “What will the government do with Europe? This is the question.”
The European Commission has rejected Italy’s budget and told Rome to revise its plans. The coalition government has so far refused to countenance such a suggestion.
European Central Bank President Mario Draghi said last week that the bond sell-off was set to dent the capital of Italy’s banks. He added that if Rome wanted to protect its lenders it should lower the tone of its discussions with Brussels and stop questioning “the existential framework of the euro”.
His comments drew rebukes from within the coalition, with Deputy Prime Minister Luigi Di Maio accusing him of “poisoning the atmosphere”. However, Tria, who is an economics professor and has no political affiliation, defended Draghi.
“Draghi was not inappropriate. He said what a central banker has to say and what I have also said,” Tria said.
He added that Italian banks were not yet facing problems.
“Our banks are still solid. They can pass the capitalisation tests, at least almost all of them can. There are no dangers for now,” he said. But he told his audience that if a lender did get into trouble, the government would intervene.
“It is right for the state to intervene when there is a bank in crisis. Of course there is the problem of moral hazard,” he said.
(Reporting by Silvia Ognibene; Writing by Crispian Balmer; Editing by Hugh Lawson)