The Italian economy and public debt: a pair that has become almost indivisible for years now.
Indeed, as far as our country’s economy is concerned, public debt is among the central (and ‘driving’) issues of the various assets that also drive the domestic market, but not only that.
Is it true that Italy is one of the most indebted countries? What is the ratio of Btp to public debt?
To take stock of the current situation, it should be pointed out that we are talking about a debt of more than 2.8 trillion euros, more or less 145 percent of GDP. As a result, yes, it is true, Italy is rightfully among the countries with the highest level of debt in the world.
1. BTP and public debt
Before developing our analysis further, however, it is worth recalling what BTPs (Buoni del Tesoro Poliennali) are, that is: debt securities issued by the Ministry of Economy and Finance to finance the Italian public debt. These are medium- to long-term instruments, with maturities ranging from 3 to even 50 years.
Public Debt, on the other hand, represents thetotal amount of liabilities accumulated over the years in a country due to budget deficits. This occurs when the government’s expenditures exceed its revenues. In addition, public debt is mainly measured in relation to GDP (Gross Domestic Product). It goes without saying that the debt/GDP ratio is an essential indicator to be able to assess the sustainability of the debt itself.
Focusing on public spending in Italy, it can be said that in the last two decades of the 20th century this increased markedly, particularly due to borrowing derived from the financing of current expenditures, as well as expansive fiscal policies and unfavorable economic events.
Focusing on public spending in Italy, it can be said that in the last two decades of the 20th century this increased markedly, particularly due to borrowing derived from the financing of current expenditures, as well as expansive fiscal policies and unfavorable economic events.
2. What has Italy done to reduce debt ?
What has Italy done in recent years to reduce its debt? First of all, it should be pointed out that, unfortunately, the room for maneuver at the moment is definitely limited, not least because of fairly low economic growth.
On the other hand, our public debt is undoubtedly connected to European dynamics, and it is precisely because of the ECB’s-i.e., the European Central Bank’s-expansive monetary policies aimed at keeping interest rates at historic lows that the cost of servicing debt has remained relatively low.
Let us not forget, however, that raising interest rates would increase the cost of debt. This would only lead to significant difficulties for public finances and their management.
3. BTP and public debt
At this point, inevitably, our theme broadens from “Btp and public debt” to“Btp, public debt and the euro zone…” Italy, in fact, cannot disregard European dynamics, for example, by depreciating its currency so as to reduce its debt (since it is not a currency of its own, this will never be possible).
BTPs in the European Union are perceived as indicators of our country’s economic stability (as well as investor confidence). That is why the possibility of rising interest rates could risk putting pressure on the BTP market and, at the same time, on the sustainability of Italian debt.
In Europe at the top of the ranking of the most indebted countries is Italy, but still in other countries, such as France and Spain, the situation is not much different, with public debt above the average of other European nations.
From high government spending to interest on debt, not to mention a low growth rate, there are multiple major factors contributing to high public debt, and the main causes behind it certainly did not begin in recent years. It is then crucial to carefully consider what the prospects might be for reducing public debt and strategies for optimizing the finance sector. Sustainable economic growth, structural reforms, and debt management are undoubtedly among the issues that should not be underestimated in order to begin a turnaround.
In addition, as far as BTPs are strictly concerned, we must emphasize that in the context of financing Italy’s public debt they are a literally fundamental pillar. This means that both policy choices and structural reforms will stand out as decisive in ensuring responsible debt management, without of course ruining investor confidence.
Economic growth and sustainability of public accounts, therefore, are profoundly affected by the level of debt. For this very reason , in an attempt to reduce public debt, it would be advisable to increase economic growth.
It is a fact: when GDP grows, the debt ratio decreases. However, for real and lasting growth there are not a few challenges facing our country. These are real structural challenges, including an aging population or stagnant investment.
This is another reason why it is essential to evaluate and seriously consider bringing more young people into the labor market and investing in innovative technologies as part of an overall improvement.
