REFILE-Intesa Sanpaolo CEO says political instability would create 'perfect storm'

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MILAN, Dec 15 (Reuters) - Adding political instability to the uncertainty Italy now faces due to the coronavirus pandemic risks creating a “perfect storm,” the head of the country’s biggest bank warned on Tuesday.

The ruling parties have been squabbling over how Rome should manage more than 200 billion euros ($243.2 billion) it is due to receive from the EU’s Recovery Fund, fuelling talk of a possible government collapse.

Interviewed at an online conference, Intesa Sanpaolo CEO Carlo Messina said Italy needed cohesion at a difficult time.

“We absolutely need political stability at a time when Europe is trying to prove that all together we can compete against the United States and China,” Messina said. “It would be an unforgivable mistake; I don’t think Italians would forgive their political leaders.”

He said the government had to make a priority of fighting spreading poverty next year to avoid social clashes, while also reviving short-term growth through investments in infrastructure and construction.

Messina said growth was essential to keep under control Italy’s debt, which data on Tuesday showed had reached a new record high of 2.59 trillion euros ($3.15 trillion) in October.

Failure to curb public debt in the next few years by reviving Italy’s chronically stagnant economy could make a wealth tax inevitable down the road

“I see it very negatively ... more like a defeat that awaits us if we fail to manage the debt in the current phase, rather than a solution to the problem,” he said.

He said Italy should instead funnel Italian households’ ample wealth towards public debt through pension funds or real estate funds. ($1 = 0.8222 euro) (Reporting by Valentina Za in Milan Editing by Matthew Lewis)