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Bailout for Italian banks has been 'absolutely' ruled out

Italy's Finance Minister, Pier Carlo Padoan, has said the country's banking system can be recapitalized without a formal bailout or any financial assistance by the European Stability Mechanism (ESM).

Italian policymakers and EU officials have been trying to deal with Italy's fragile banking system in recent months, which has been bogged down by non-performing loans (NPLs) estimated to total 360 billion euros ($400.7 billion).

Reports earlier in the summer had suggested that Matteo Renzi, the Italian prime minister, was hoping to bail out the banking sector with taxpayer money, which would contravene EU rules. Such a solution would stand in contrast to a bondholder "bail-in," but would have perhaps protected Italian households which are heavily exposed to the asset class. Those reports have since been denied and Padoan called the idea "total imagination".

"We are not talking about that kind of money and we are not talking about a bailout. Bailout is ruled out in the European context. So we are working within the rules, within the bail-in system, which implies strong participation by the shareholders and stakeholders in recapitalizing the banks," he told CNBC on the sidelines of the Ambrosetti Forum in Italy.

"This is helped by the fact that we are putting in place a legal framework in dealing with NPLs," he added.


'We don't need the ESM'

Italian Finance Minister Pier Carlo Padoan speaks to CNBC's Julia Chatterley on the sidelines of the European House-Ambrosetti Forum.
CNBC
Italian Finance Minister Pier Carlo Padoan speaks to CNBC's Julia Chatterley on the sidelines of the European House-Ambrosetti Forum.

When asked about potential for help from the ESM - a crisis resolution mechanism set up for euro area countries - he was equally resolute.

"The ESM implies an economy with problems and in danger. This is absolutely not the case in the Italian economy, we don't need the ESM, we will not ask for the ESM. And as far as the resources are concerned, this is not a problem, because these resources will come from the private sector," he said.

Private cash looks to be helping in the case of Banca Monte dei Paschi di Siena (BMPS). The bank secured a dramatic 5 billion euros ($5.6 billion) rescue package in late July, after months of concerns about its portfolio of bad loans sent its share price plunging.

Stagnant global growth

Meanwhile, Padoan gave a stark assessment of the global economy on Friday, urging governments and central bank policymakers to mobilize all the instruments that are at their disposal to spur growth.

"Yes of course (growth is) disappointing, unfortunately not just for Italy but for the euro zone and I would say for the global economy," he told CNBC.

"We are heading to the G-20 summit in a couple of days and this will be the main topic which means that policy must do more and we must mobilize all the instruments that are at our disposal."

Padoan added that stagnant growth was "hugely" a global and a European problem, but said that there were countries - like Italy - which has specific issues.

"We're dealing with them. They are both structural and short term," he added.

New figures released Friday confirmed that Italy's economic growth was flat in the second quarter of this year, compared to the month before. Yearly gross domestic product growth saw an uptick of 0.8 percent, compared to the same period last year.

—CNBC's Catherine Boyle contributed to this article.