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Italy eyes real estate for cash as privatisations become a mirage

* Italy pledged to raise 18 bln euros this year to cut debt

* Has so far sold nothing

* Officials acknowledge goal already unrealistic

* Italian debt is second highest in euro zone

By Angelo Amante and Gavin Jones

ROME, April 24 (Reuters) - Italy will fall far short in this year's privatisation programme to rein in public debt, coalition officials said, with the government now aiming to raise a third of the originally planned amount by selling real estate.

Italy's public debt rose last year to 132.2 percent of GDP, proportionally the second highest in the euro zone after Greece's and up from 131.4 percent the year before.

With the European Commission and financial markets fretting, in its 2019 budget last autumn the government vowed to reverse the trend partly through an ambitious 18-billion-euro ($20.17 billion) privatisation plan.

Five months on not a single asset has been sold and no preparations have been announced, with the right-wing League and the anti-establishment 5-Star Movement focused instead on promises of tax cuts which could push the debt even higher.

A senior coalition source said the government has scaled down its plans and now aims to raise "up to 5 billion euros" this year by selling real estate currently managed by public agencies including state holding company CDP.

However, many analysts are sceptical.

"Real estate privatisations are not going to work," said Luca Paolazzi, an economist at Milan-based economic think-tank REF. He noted that similar schemes had floundered in the past for several reasons.

Among these, he noted that most available public real estate is in the hands of local authorities which are unwilling to sell. In addition, Italy's byzantine bureaucracy is a disincentive to investors who need multiple permits to change the use of purchased properties.

Claudio Borghi, the League's economics spokesman, said this month that nearly all attractive real estate had already been sold off by previous governments and the idea of raising significant cash this way was a "chimera".

However, his party colleague and Treasurer Giulio Centemero disagreed.

He told Reuters that obtaining substantial revenue through real estate was realistic and should be seen as "a sign of goodwill" towards markets. "We want to show responsibility and awareness that public debt must be reduced," he said.


STRATEGIC ASSETS

The faster route to debt reduction would be divesting pieces of large state-owned companies such as oil major Eni and utility Enel, but this has been ruled out by 5-Star, the senior government partner, which views them as strategic assets.

Another possible privatisation target is Poste Italiane , which floated a 35 percent stake in 2015 and has since seen its share price rise by more than 40 percent.

However, there is little time left for a public offering this year, meaning the only viable option would be through a direct sale to a group of selected investors, which would be likely to raise significantly less than a billion euros.

In the past, assets have been sold to state holding company CDP, which is formally outside the public administration, but these moves have come under growing scrutiny from European statistics agency Eurostat.

"There is a continuous focus (by Eurostat) on the operations carried out by CDP," a senior official from Italian national statistic institute ISTAT told Reuters.

Italy's budget watchdog, the Parliamentary Budget Office, said this month that involving public bodies such as the CDP in privatisations could lead to a breach of EU accounting rules "with the risk of annulling the reduction of the debt." ($1 = 0.8925 euros) (Additional reporting by Giuseppe Fonte and Francesca Landini; Editing by Toby Chopra)