The IMF freezes Rome: “The growth slows” – The Republic

THE International Monetary FUND plans to lower its growth forecast for Italy, due to the increased volatility in financial markets caused by the UK’s decision to leave the Union European. The announcement accompanied the presentation of the annual report for Italy.

Report in which the Fund has asked that the rules on bank resolution and in particular the so-called “bail in” are applied “adequately.”

the conclusions of the Fund arriving while the Italian government is exploring the possibility of using public money to help the banking system and, in particular Monte dei Paschi di Siena. The new EU rules allow the preventive recapitalization of banks in trouble, but predict that bondholders suffer losses subordinates together to shareholders. In a conference call on the margins of the presentation of the report “Article IV”, Rishi Goyal, head of mission for Italy, said the Fund is planning to lower its growth forecast for 2016 from 1.1% to ” less than 1% “, and 1.3% for 2017 to around 1%, with risks of further downward. The new estimates, which will be finalized on July 19, replace those that are included in the report and which had been produced before the vote on “Brexit”. The new forecasts reflect the impact of the increasing volatility in the markets should have on investment and the Italian growth, rather than the Italian exposure to the British economy that Goyal calls “relatively modest”. The Head of Mission for Italy considers that the Italian authorities are “in full control” of the difficulties associated with a recovery which remains “fragile.”

But the Fund also calls for further measures to strengthen the banking system : these include an analysis of quality of assets for those banks that are not under the direct supervision of the European central Bank, the strengthening of banking supervision and intensification of extra-judicial procedures for the management of non-performing loans.

Goyal prefer to wait for the European banking Authority’s tests and the ECB to determine if and how much capital the Italian banks are in need. But the Fund remains convinced that within European rules there are margins to handle any circumstance: “There is enough flexibility in European rules to handle any type of situation,” he says.

The European rules stipulate that there can be exceptions to any “bail in” subordinated bondholders in case the preventive recapitalization of an institution to respond to risks to financial stability. This type of exception has never been applied, with countries such as Spain and Slovenia in the past have had to impose losses to

The Fund recognizes that the highest prevalence in Italian retail investors between subordinated bondholders requires more care in application of the rules on bail in. “Concerns about the bail for retail investors need to be managed adequately,” says the Executive Board of the IMF. But Washington’s economists also asking the government to move independently for small savers precautionary. The Fund suggests to Italy to identify and punish vigorously cases of fraudulent sale of securities, strengthen safeguards and controls to prevent such cases from happening in the future and protect the poorest families who hold subordinated bonds through a safety net based income.

And the Fund also calls on the government to speed up the troubleshooting procedures for those banks that are going to fail. “You must use the rules for the prompt resolution of banks in the process of failure,” writes the Fund. “A passive or belated attitude towards the resolutions can increase the uncertainties and destroy value for the banks and for the entire system.”

Topics:

IMF

Italian GDP

bail in

international Monetary Fund

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