Italy PM calls for European recovery bonds - report

By Francesca Landini

MILAN (Reuters) - Italian Prime Minister Giuseppe Conte has urged the European Union to launch a "recovery bond" to help fund the response to the coronavirus outbreak, saying failure to tackle the emergency would be a "tragic mistake" for the bloc.

In an interview with Italian daily Il Sole 24 Ore on Saturday, Conte said a common debt instrument was needed to spearhead a European recovery and reinvestment plan to support the economy of the whole area.

Using, instead, the European Stability Mechanism (ESM) to borrow on the market and lend cheaply to governments under some conditionality would not be the right response, he said.

"The ESM is a tool created to help single member states that face financial problems caused by asymmetric shocks," Conte said, adding that the virus outbreak was instead causing a shock for whole Europe.

"If Europe does not prove to be up to this historic challenge, the whole European building risks losing, in the eyes of our own citizens, its raison d'etre".

Conte added that, even with the launch of a European recovery bond, each country would continue to remain responsible for its public debt.

A summit of EU leaders on Thursday failed to reach an agreement over a joint economic response to the virus and gave euro zone officials two weeks to come up with a way to support the economy during the epidemic.

The support tools need to satisfy members with completely opposing views: those calling for joint debt issuance and those fiercely against it.

Nine countries, including Italy, France and Spain, have called for common debt, but Germany, the Netherlands, Austria and Finland are opposed.

Italy, which has seen more fatalities from the coronavirus than any other country so far, is preparing a second stimulus package in April worth more than the 25 billion euro (22.5 billion pounds) one adopted in March.

Conte confirmed in the interview that the total value of the stimulus measures would be more than 50 billion euros, adding the country's public debt would not spiral out of control.

"Our debt is completely sustainable," he said.

The extra spending means Italy's 2020 budget deficit looks certain to climb above 4% of GDP, from the 2.2% target set in September and the 1.6% reported in 2019, which was the lowest in 12 years.

Credit rating agency Scope warned on Thursday the economic costs of the epidemic could easily push Italy's debt-to-GDP ratio above 145%.

(Reporting by Francesca Landini; Editing by Mark Potter)