ROME/MILAN - As Italy’s already massive public debt soars further due to the coronavirus crisis, its authorities are calling on ordinary citizens to help fund recovery efforts. The plan could aid immediate financing needs but will do little to allay eventual default risks.
But a day of reckoning for the euro zone’s third largest economy looks inevitable, analysts say. The country proved unable to lower the world’s third highest debt mountain even during economic good times - and it cannot rely on the ECB forever. “The underlying structure of our public finances are under control, now we are tackling this emergency situation but immediately afterwards the government will be committed to a debt reduction strategy.”
Deutsche Bank forecast this week that Italy’s debt-to-GDP ratio would climb to more than 200% at the end of next year, concluding that “this does not seem sustainable.”One idea gaining traction among politicians and bankers is for ordinary Italians to shoulder more of the country’s debt burden. They look at Japan, whose debt dwarfs Italy’s, at close to 240% of gross domestic product, and yet is seen at negligible risk of default because it is almost all owned domestically.
Carlo Messina, the head of Italy’s largest retail bank Intesa Sanpaolo, last month called for the issuance of what he called “social bonds” dedicated to ordinary Italians. He said appeals for ordinary Italians to buy up the public debt were a “sign of desperation” and could generate fears the government could make such purchases obligatory by drawing funds directly from people’s bank accounts.
Banks still play an important role in supporting Italian debt because they tend to step up purchases during market sell-offs, to then offload some of it when prices rebound.
gavinjones10 Za_lentina What about spectacular Larry