Italian dispute won't affect euro zone much, Slovenia's Dolenc says

By Marja Novak

LJUBLJANA (Reuters) - A dispute over Italy's proposed budget is expected to have little effect on the euro zone, the deputy governor of Slovenia's central bank told Reuters on Thursday.

The European Commission says the Italy's proposed budget would push up Italy's public debt, which is already around 130 percent of GDP, the highest in the euro zone after Greece.

Italian government bond yields have climbed since the budget was proposed, partly on concern the Commission would reject it - an unprecedented move. But so far the row over Italy has not spilled over into other euro zone bond markets.

 

"Potentially the influence could be big if that would spread over Europe, but I expect de facto influence will be small or negligible," Bank of Slovenia Deputy Governor Primoz Dolenc said on the sidelines of a banking conference.

He also said the European Central Bank is preparing for all possibilities regarding Britain's exit from the European Union.

So far, the EU and Britain have reached no agreement on the terms of Britain's departure, which is due to take place in less than six months.

Asked about the possibility Britain would leave without an agreement, Dolenc said: "It is hard to comment what the influence would be on the monetary policy or the duties of ECB. ECB is preparing on all scenarios and we will be ready whatever happens."

He said he expected ECB interest rates to remain low through the summer of 2019. "Interest rates will be low for a long time still, probably through the summer of 2019."

Dolenc has led the Bank of Slovenia since former governor Bostjan Jazbec resigned in April to take a position on the EU's Single Resolution Board.

(Reporting by Marja Novak; editing by Ivana Sekularac, Larry King)