By Giada Zampano And Giovanni Legorano
ROME--Bank of Italy Governor Ignazio Visco called on Friday for
urgent action to sustain public investments in the eurozone,
highlighting the 18-member bloc is facing tangible risks of
deflation and low growth, leading to volatility on the European
financial markets.
Mr. Visco, who is also a member of the European Central Bank's
governing council, said macroeconomic conditions in the euro area
are weakening again, stressing that the reasons for the bloc's low
growth are "structural."
"Measures aimed at boosting the potential of growth are
indispensable," he said in a speech at a banking conference in the
capital. "In some cases they have already been adopted; they need
to be reinforced."
Mr. Visco also called for a more flexible interpretation of EU
fiscal rules, especially those focused on debt reduction, saying
they become more onerous in a scenario of low inflation and risk
being counterproductive. "The rules offer margins to conciliate
fiscal discipline and growth support," he said.
Of late, Italy has been leading the drive to shift the focus of
EU economic policies from austerity to investment and growth, as
part of a wider debate that is dividing members of the
eurozone.
Mr. Visco also defended the role of the Bank of Italy in making
the local banking system robust and ready to face the European
regulators' assessment.
"The overall resistance of the system is the result of the
supervisory action [of the Bank of Italy] in ensuring adequate
provisions for bad loans," Mr. Visco said, adding banks have been
also been particularly prudent in their 2013 balance sheets.
He added the Bank of Italy strongly encouraged all measures
banks took this year to shore up their balance sheets. However, he
conceded that Italian banks were "undeniably" late in preparing for
the tests, having been particularly penalized by Italy's bad
economic conditions. Unlike in other European countries, Italian
banks received no significant state aid before the tests, Mr. Visco
said. Italian banks under the European assessment raised in the
market a total of EUR11 billion ($13.9 billion) this year to plug
potential shortfalls.
Despite these actions, Banca Monte dei Paschi di Siena SpA and
Banca Carige still need to find additional capital.
"The capital shortfalls [of these two banks] are largely the
result of past episodes of bad management, which the Bank of
Italy--together with the judicial system--helped unveil," Mr. Visco
said.
He added local banks will need to keep on strengthening to
adequately finance the economy.
Write to Giada Zampano at giada.zampano@wsj.com and Giovanni
Legorano at giovanni.legorano@wsj.com