Italy's Draghi sees room for fiscal expansion without risking inflation

[July 01, 2021]  ROME (Reuters) -Italian Prime Minister Mario Draghi said on Thursday he saw "plenty of room" for Italy to use expansionary fiscal policies before creating inflationary pressures in the country.

In a speech to academics, Draghi said it was "very probable" the current phase of increasing public and private debt was not yet over, adding the government was ready to intervene with "conviction" if the pandemic worsened, damaging the economy.

Italy's public debt, proportionally the highest in the euro zone after Greece, stood at a record 155.6% of GDP at the end of 2020 and in April the Treasury forecast it would climb to 159.8% this year, the highest in the country's post-war history.

Rome has guaranteed more than 200 billion euros ($237.38 billion) in debt through loans banks have granted to firms hit by the pandemic.

Draghi said part of the guarantees will likely contribute to further drive up Italy's public debt when some firms will prove unable to repay their debt.

"It is inevitable that a part of this implicit debt will crystallise, and will then increase the public debt," Draghi added.

The former European Central Bank chief said inflation within the euro area continued to remain low, necessitating an accommodative monetary policy, but he warned that might not last for ever.

Looking forward, Draghi said future talks on the reform of European budget rules would be the ideal opportunity to decide how to allow member states to issue safe debt to stabilise their economies.

($1 = 0.8425 euros)

(Reporting by Giuseppe Fonte; Editing by Crispian Balmer and Chizu Nomiyama)

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