Italian minister says referendum won't cause repeat of 2011 debt storm

November 25, 2016 10:08 AM EST

Italian Finance Minister Pier Carlo Padoan speaks at a news conference during the IMF/World Bank annual meetings in Washington, U.S., October 8, 2016. REUTERS/Yuri Gripas


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By Steve Scherer

ROME (Reuters) - Economy Minister Pier Carlo Padoan said on Friday the result of Italy's Dec. 4 referendum will not put the country in the eye of a new debt storm like the one that nearly pushed it into default five years ago.

Italians will be called on Dec. 4 to vote on Prime Minister Matteo Renzi's flagship constitutional reform, which he says will strengthen future governments by curbing the powers of the Senate.

Renzi has staked his job on the reform being approved, but opinion polls show the "no" vote well ahead. Government bond yields have been rising on fears of renewed political instability in Italy, the euro zone's third-largest economy.

The gap between Italian and German 10-year-bond yields widened this week to more than 188 basis points, but remained well below the more than 550 basis points reached in 2011.

The yield on Italy's benchmark 10-year bond was more than 3.66 percent on Friday, compared with peaks well above 7 percent reached at the end of 2011.

"The economic fundamentals have improved greatly," Padoan said in an interview on SkyTG24 TV, adding that the banking system and public finances were more stable now in 2011.

The referendum will have just a modest impact on financial markets, a Reuters survey showed on Friday. Investors will likely demand an extra 25 basis points in yield to hold Italian debt over its German equivalent if the "no" vote prevails, the poll showed.

Italian stocks, the worst performers this year across major markets globally, were slightly lower on Friday, taking their year-to-date losses to more than 23 percent.

Concerns around non-performing loans have halved the value of Italian bank stocks this year.

Banca Monte dei Paschi di Siena shares fell more than 8 percent on Friday as doubts remained over who would buy into a 5-billion-euro ($5.3 billion) recapitalization plan approved by shareholders to keep the Italian lender in business.

The bank plans to launch the stock sale after the referendum, but Padoan said he did not believe the outcome of the vote would scuttle the capital increase.

"It's clear that we are in a phase of uncertainty, but the market is already taking into account that uncertainty, to some extent they have priced in that uncertainty, so in reality the markets are giving less worrying signals than it might seem."

(Editing by Mark Heinrich)



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