Saturday, 9 October 2010

The Disturbing Silence of Italian Public Debt

[Edoardo Montenegro, Turin] - In August the President of the European Commission José Manuel Barroso underlined that Italy has a lot of work to do in order to cut debt and deficit an thus restore wealth, even if the banking system, private debt and unemployment are under control (1). By December 2010, about € 70 bn of long term Italian public bonds had indeed to be rolled over (2).

Since the outburst of the world financial crisis, the Italian Ministry of Economy actually worked well, reducing the roll over impact (3) by abstaining from increasing the weight of short term emissions (4).

Nevertheless, the real problem is growth. According to the European Commission, Italian GDP will grow by 1.1% in 2010 (5), but estimates for 2011 are very uncertain: while Government says 1.5%, Deutsche Bank says 0.8% (6).

Studying the effect of a moderate and protracted growth shock of 1% until 2015, the International Monetary Fund concluded that Greece and Italy, having higher pre-crisis debts and larger automatic stabilizers (7), are more exposed than other countries to fiscal risks: even if the outlook is stable, Italian debt-to-GDP ratio is projected at 118.4% in 2010 (8).

The negative effect of public debt is lessened by high private savings: between 1995 and 2009 Italian families increased their assets, which amount to € 140,000 per capita, by 34% (9).

As remarked by Tito Boeri, however, the reformed European Growth and Stability Pact might force Italy to cut its debt by € 50 bn every year until 2020, in order to bring the debt-to-GDP ratio back to 60% in the longer term. Overwhelmingly, though, in his recent speech to the Parliament Silvio Berlusconi did not even mention the problem (10).

Italian citizens are thus in for higher taxes and heavy expenditure cuts, but nobody told them.


(1) Vittoria Puledda, "Barroso: Italia, attenta a debito e deficit",, August 28th 2010.

(2) Isabella Bufacchi, "In scadenza entro l'anno altri 134 miliardi",, August 31st 2010.

(3) Short term emission - such as Italian BOTs - have to be rolled over more frequently, every 3 to 12 months. On the contrary, long term emissions - such as Italian BTPs - have to be rolled over less frequently, every 3 to 30 years. While the financial crisis is straining public finance, countries harshly fight each other to sell their bonds to the financial markets at the lower price: the more risky is a country public debt, the higher is the interest rate it has to grant to investors. The shorter is the debt, the more stressing is the task to find new investors.

(4) Read Isabella Bufacchi: "Aste per 200 miliardi entro fine anno",, September 10th 2010 and  "Maratona di emissioni per il Tesoro", Il Sole 24 Ore, September 26th 2010, p. 25.

(5) Adriana Cerretelli, "Migliora la crescita italiana",, September 14th 2010.

(6) Superbonus, "Verso l'apocalisse portoghese del debito",, September 26th 2010.

(7) Automatic stabilizers are tools mitigating the effects of GDP fluctuations on citizens without any direct action needed by the government: during a recession, tax revenues typically tend to decrease since people earn less, while unemployment allowances and welfare expenditures tend to rise since more people are unemployed and need help. The result is a deterioration of public finance, which up to a certain extent can actually be useful to restore the conditions for growth.

(8) Greece, with a negative outlook, has a projected 130.2% debt-to-GDP ratio in 2010. Read International Monetary Fund, "Global Financial Stability Report. Sovereigns, Funding, and Systemic Liquidity",, October 2010, pp. 6-7.

(9) During the same period, German families increased their assets by 52%, while American families increased their assets by 23%. Private assets stand at about € 121,000 per capita for Germany and at about 101,000 for the U.S. Read Marco Fortis, which shows the results of a research led by Fondazione Edison in "La formica Italia parla un po' tedesco",, September 18th 2010.

(10) Tito Boeri, "I conti pubblici sotto il tappeto",, October 6th 2010.

Related articles in Italian
  • Massimo Mucchetti, "Quel mezzo punto che non ci consola",, September 26th 2010
  • Giacomo Vaciago, "Quanto debito, figliuolo?",, October 2nd 2010
  • Stefania Tamburello, "'Conti pubblici al sicuro per il 2010'", Corriere della Sera, October 6th 2010, p. 28
  • Anna Guanta, "L'Fmi: 'L'economia italiana migliora'", Il Messaggero, October 8th 2010, p. 23
  • Francesco Verderami, "Tremonti: non ci sono soldi. Gelo con gli altri ministri", Corriere della Sera, October 8th 2010
  • Roberto Petrini, "Tremonti: ora via alla riforma fiscale",, October 8th 2010 


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