Vittorio Grilli, Italy's new Economic Minister, Asset sale could cut debt by 20%

Italy's new economy minister says a planned sale of public assets could raise enough money to help bring down the country's huge public debt by 20% in five years, according to newspaper Corriere della Sera Sunday.

In his 1st interview since being appointed to the job, Vittorio Grilli tells the newspaper that the best way to go about it would be to sell between EUR15 billion and EUR20 billion worth of assets a year, equivalent to 1% of the country's gross domestic product.

If you consider that we already have a public surplus, before interest payments on the debt, of 5%, and you calculate a nominal growth of 3%, stripping away inflation of 1%, that would lead to reducing it (the debt) by 20% in five years, he is quoted as saying.

But Mr. Grilli, who was sworn in on 11 July after serving as deputy minister, says the government, which is imposing a series of measures to shore up the country's public finances, could have difficulty selling off assets, especially real estate, because their quality is not as good as those sold 20 yrs ago.

Italy has a public debt of EUR1.95-T, equivalent to 123% of its GDP, a source of concern for investors as the country's technocratic government struggles to prevent Italy from falling further victim to the sovereign debt crisis.

Moody's has downgraded Italy's debt to Baa2 from A3 and given it a negative outlook, saying only a sharp cut to the debt load would trigger an upgrade.

The downgrade raised the ire of Italian business and political leaders Friday. They accused the ratings agency of failing to recognize the efforts of Prime Minister Mario Monti's government to fight tax evasion, cut public spending, and raise taxes.

A balanced budget is at hand, the structural reforms are underway. No other country has done so much in such a short period of time, says Mr. Grilli.

Italy's rapport with the ratings agencies had become more difficult if not impossible, he says.

Before, the relationship was easier, he adds. Now they tell us (of their decision on a change in a rating) when everything is decided, they don't accept explanations.

Mr. Grilli says foreign investors own about 40% of Italy's public debt, adding that it was too soon to say whether they would return to buy more of it.

Although Moody's downgrade prompted the spread between Italian 10-year bonds and the German bund to rise Friday, an auction of EUR5.25-B worth of 3-yr bonds by the country's Treasury met ample demand.

Mr. Grilli says he hopes the government will not have to raise a value-added tax all the way to 23%, as has been scheduled for next year.

He also hopes the labor taxes will go down as the government raises more money from the fight against tax evasion, which he expects to bring more than EUR10-B to public coffers this year.

As for the expected decline in GDP this year, Mr. Grilli sees the contraction at slightly less than 2%-a more optimistic forecast than that made by others including Giorgio Squinzi, the head of industrial lobby group Confindustria, which sees a contraction of more than 2%.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.