View from City Road: Italy goes into top privatisation gear

From launching slow and grudging privatisations in the 1980s, Italy has leapt to the other extreme by cramming the sale of three large banks into a couple of months. Hard on the heels of the sale of a stake in Credito Italiano for pounds 700m, the government has brought forward a pounds 1bn sale of almost half of Banca Commerciale Italiana to 28 February, only a couple of weeks after 20 per cent of the state-owned credit company Istituto Mobiliare Italiano comes under the hammer.

The haste has much to do with the imminence of elections and a desire to rake in cash now, in relatively settled markets. The government signalled, with a substantial discount to the market price of Credito Italiano, that it was willing to pile its stakes high and sell them cheap, and Italian investors responded with enthusiasm.

Roadshows will be descending on London, Edinburgh and other northern European cities in the coming weeks to persuade institutions to snap up BCI as well, while the going is good. This is an institution with a better record than some other Italian banks, because it is not so heavily exposed to the worst industrial basket cases such as Feruzzi. It also has wider interests than many outside Italy.

The pace of bank sales is bound to win the approval of the Organization for Economic Co-operation and Development, which devoted a substantial part of a report yesterday on Italy to the progress of privatisation.

The OECD suggests a sensible reason for freeing the banks first. Privatisation could go into reverse if banks remain under state control, because they will increasingly be called on to convert the debt of ailing industrial companies into equity during rescue operations. They will end up, by default, owning more large chunks of corporate Italy.

There are long-standing arguments for breaking the stifling grip of state holding companies on the Italian economy, a debate that has swung backwards and forwards - and was accompanied by a series of badly thought out privatisations in the 1980s.

The OECD believes Italy has not yet defined the objectives or the mechanics of privatisation in a clear enough way. But it does appear satisfied that this time the campaign to sell off state assets will be sustained, and it nods approvingly towards the speed at which the process is taking place.