Italy’s Public Debt Concerns

By Angelo Amante

ROME (Reuters) – Italy’s president stated there was an “inescapable need” to reduce the country’s vast public debt but cautioned that market perceptions of financial reliability were “questionable.”

Speaking via video link at the Teha economic forum in Cernobbio, President Sergio Mattarella noted that the cost of servicing Rome’s debt was significantly higher than that of neighboring countries due to interest rates.

“And yet Italy is an honourable debtor, with a 30-year history of annual primary government surpluses, with a public debt that has grown to a large extent, since 1992, mainly due to interest,” Mattarella explained.

Italy’s public debt, the second largest in the euro zone relative to output, is closely monitored by rating agencies and is currently projected by the Treasury to rise to nearly 140% of GDP by 2026.

Mattarella reported that Italy’s debt reached nearly 2.9 trillion euros ($3.22 trillion) in 2023, and that Rome paid slightly less in interest than Germany and France combined.

“This is not an invitation to neglect debt: I am fully aware of the inescapable need to bring it down,” Mattarella emphasized.

Italy, along with France and other countries under the EU’s Excessive Deficit Procedure (EDP), must submit draft budgetary plans to the European Commission to reduce deficit and debt levels, which markets are closely watching.

The EDP mandates Italy to lower its structural budget deficit – net of one-off factors and business cycle fluctuations – by 0.5% or 0.6% of GDP annually.

Sources disclosed last week that in its upcoming medium-term structural budget plan, Prime Minister Giorgia Meloni’s government would adhere to the commitment to reduce its deficit-to-GDP ratio below the EU’s 3% limit by 2026.

($1 = 0.8996 euros)