(Adds more quotes, background)By Francesco Canepa and Jan StrupczewskiNUSA DUA, Indonesia, Oct 11 (Reuters) - There is noimmediate danger of Italy losing market access or beingdowngraded below investment grade because the Italian economyhas underlying strengths, the head of the euro zone bailout fundESM Klaus Regling said on Thursday.In a panel discussion at an event at the InternationalMonetary Fund meetings in Bali, Indonesia, Regling wasresponding to a question on what would happen if Italy lostmarket access like Greece did in 2010, triggering the sovereigndebt crisis in Europe."There is no immediate danger for Italy to lose access tothe markets, there is no immediate danger of it being downgradedbelow investment grade, they are still two notches above,"Regling said.Regling noted that during the Greek debt crisis, Italy neverlost market access because of the underlying strengths of itseconomy."Despite the high debt levels, the fiscal deficit was neverexcessively high, the primary surplus was quite sizeable, Italyhas a current account surplus and Italian private domesticsavings are very strong, and a large share of Italian governmentbonds are in the hands of residents," Regling said.Italy's populist government raised market concern when itannounced two weeks ago a plan to raise its headline budget gapto 2.4 percent of gross domestic product in 2019 and keep itthere in 2020 and 2021.
This would mean also a higher structural deficit - thebalance which excludes one offs and business cycle effects - andhigher debt in a country which already has a debt to GDP ratioof 133 percent, the second highest in Europe."I don't like the announcements on fiscal targets for thenext three years because they are not in line with the Europeanfiscal framework which was adopted by all governments includingthe Italian government at the time," Regling said.Pressure from investors selling Italian debt and from eurozone peers made Rome lower the deficit targets for 2020 to 2.1percent and to 1.8 percent in 2021, but euro zone officials saidit was not nearly enough, as Italian debt would still rise."We already saw that the Italian government made someadjustments during the last few weeks, so I hope this is not theend of the story," Regling said."But at the same time, let's not forget that there are someunderlying strengths so there is no reason to immediately expectnow the worst," Regling said.Italian benchmark 10-year bonds still held at4.5 year highs of 3.543 percent on Thursday, though slightly offthe peak of 3.697 percent on Tuesday. (Reporting By Francesco Canepa and Jan StrupczewskiEditing by Shri Navaratnam)
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