UPDATE 1-Draghi says Italy’s record debt ratio of 160% is nothing to worry about
* Italy’s debt is proportionally the second highest in the euro area
* Draghi says ECB support low rates mean pressure is off
* Says that growth is now seen as key to debt reduction (redesigns, adding quotes, background)
ROME, April 16 (Reuters) – Italy’s record public debt is not of concern as low interest rates, central bank support and the COVID-19 pandemic have changed the way markets view debt sustainability, Prime Minister Mario Draghi said on Friday.
Speaking to reporters the day after Italy’s debt hike expected this year to a post-war high of 160% of gross domestic product, Draghi said “seen through yesterday’s eyes it would be very worrying.” .
But the coronavirus has changed everything, said the former head of the European Central Bank, with the ECB acting as a safety net for sovereign issuers and the prospect of new European fiscal rules.
“Today’s eyes see things completely differently, the pandemic has made the creation of a lot of debt legitimate, it has instigated the strategy of the ECB and it is driving the behavior of those who make the rules in Brussels,” said Draghi.
The European Union has suspended the Stability Pact rules governing public finances to enable countries to deal with the coronavirus crisis, and Draghi said no member state is proposing to restore them to their old terms.
In March, the ECB stepped up the pace of its pandemic emergency purchasing program to stem the rise in bond yields and keep credit cheap for governments, businesses and households affected by COVID-19 .
Italy’s debt is proportionally the highest in the euro zone after Greece’s.
Draghi said there was broad agreement within the EU that when new fiscal rules were set, they should allow countries to gradually reduce their debt levels without hurting their growth prospects.
This would mark a radical departure from the policy adopted in 2012 when Draghi, as head of the ECB, backed a so-called fiscal compact toughening borrowing rules to force a rapid reduction in the debt of heavily indebted countries. like Italy.
“We have raised debts, we are raising debts and we will continue to do so,” Draghi said.
Distinguishing between “good debt and bad debt,” he said what matters now is that countries use debt for productive investments to create growth.
“Growth is the main criterion … the question is whether countries can grow enough to eventually pay off the debt they create today.”
The Italian economy is the most chronically sluggish in the eurozone and, adjusted for inflation, has seen no growth since the creation of the single currency more than two decades ago. (Edited by Catherine Evans)