Italy's debt must be restructured. And the sooner you do it, the better. This is the opinion of Nouriel Roubini in an article published in the online edition of the Financial Times. “It is increasingly evident – writes Roubini – that the Italian debt is unsustainable. This entails the need for an orderly debt restructuring to avoid a disorderly default.
In the article, Roubini acknowledges to his former Bocconi professor, Mario Monti, the credibility that Silvio Berlusconi's executive (“who can in any case pull the plug on government at any moment…”) did not have. “But it is the Italian debt situation that is unsustainable – insists Roubini -. A public debt equal to 120% of GDP, real rates of 5% or more against growth close to zero. A five point surplus and not close to balance would be needed to stabilize the debt. On the contrary, rates will soon rise and growth will become negative: the austerity imposed by the ECB and Germany will transform the recession into a depression”.
Mister Doom's recipe is drastic. “Italy urgently needs to cut its public debt from 120 to 90% of GDP”. To obtain this result, says Roubini, a double formula can be proposed to creditors: either the extension of the debt maturities without changing the nominal amount. In this case, the creditor banks will be able to reach maturity without having to change the value of the asset on the balance sheet. For those who do not accept this solution, a 25 percent cut can be proposed.
According to Roubini, there are no alternatives. Even if the ECB were called upon to play the role of lender of last resort, the crisis could not end. On the contrary. All Italy's creditors, once they have identified an entity ready to buy Italian bonds at current levels, would hasten to demand repayment of all 1.900 billion of the Italian debt.
The Stern University professor doesn't convince the patrimonial figure either, both because of the effect it would have on domestic demand (three points of GDP increase in tax burden for ten years), and because it is better for international lenders to share the costs of the restructuring as well ( 40% of the debt).
The problem remains of the lack of growth of the Italian economy, together with the lower competitiveness and the trade accounts deficit. “But this – concludes Roubini seraphic – requires a real depreciation which could consist in the exit of Italy and other countries from the euro”. Let's hope Roubini is wrong this time. It already happened.
