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UPDATE 1-EU defends Italy's central bank in new spat with Rome

BRUSSELS (Reuters) – European Commission Vice President Valdis Dombrovskis called on Monday for the independence of financial supervisors to be preserved after the Italian government stepped up pressure on the country’s central bank.

FILE PHOTO: European Commission Vice-President Valdis Dombrovskis arrives to a Euro zone finance ministers meeting to discuss reforms of the monetary union in Brussels, Belgium November 19, 2018. REUTERS/Eric Vidal/File Photo

Italy’s far-right deputy prime minister Matteo Salvini said on Saturday that the management of the Bank of Italy and market watchdog Consob should be “completely cleared out” because of their failures to supervise banks properly..

The Bank of Italy is replacing three board members and the comments followed the departure in September of Mario Nava, head of the Italian market watchdog, following government pressure due to his ties to the EU Commission.

“It’s important to preserve the independence of the central bank and also of financial supervisory institutions,” Dombrovskis told reporters when asked if the Italian executive’s criticism of the country’s central bank set a dangerous precedent.

Dombrovskis, who is responsible for the euro in the EU executive commission, said the independence of those institutions was a core principle of the euro zone and its monetary union.

Arriving at a meeting of finance ministers in Brussels, he reminded Italy that its economic slowdown, with growth forecast by Brussels to be 0.2 percent this year, should prompt the government to maintain responsible fiscal policies.

Rome is targeting a deficit at 2 percent of gross domestic product this year mostly to cover higher spending on welfare and pensions.

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This is considered likely to increase its public debt which stands above 130 percent of GDP, the largest ratio in the EU after bailed-out Greece.

Dombrovskis added that Rome’s initial budget plans, partly changed in December after EU pressure, had already damaged the country’s economy.

EU economics commissioner Pierre Moscovici said the economic slowdown should push the Italian government to react with reforms to boost productivity and revive growth.

He said the large downgrade of Italy’s growth forecast, which in November the commission expected to expand by 1.2 percent, would not revive discussions for a disciplinary procedure over the country’s budget which would expose Rome to higher market pressure.

But talks on Italy’s budget will resume this month as part of the commission’s regular supervision of fiscal policies in euro zone states, Moscovici added.

Brussels’ decision to put the procedure on hold in December after Rome cut its deficit target was questioned, and Austria’s finance minister Hartwig Loeger said the Italian budget should be discussed this week.

“I do not understand why the commission gave in so quickly,” he said.

Additional reporting by Peter Maushagen; writing by Francesco Guarascio, editing by Ed Osmond


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