In recent days, the Standard & Poor's agency confirmed Italy's sovereign rating at BBB and improved the outlook from negative to stable, as Mooody's did yesterday. However, the new more or less partial lockdowns are hovering over Europe, heralding of further freezes in economic growth. The +16,1% marked by the Italian GDP in the third quarter compared to the previous one, it could therefore be crushed again by other months of "deep red". From London, Lorenzo Codogno, visiting professor at the London School of Economics and founder of the consulting firm LC Macro Advisors Ltd, analyzes the dynamics of Italian sovereign debt with papers that end up in the main financial desks around the world. He was general manager at the Treasury, head of the Economic-Financial Analysis and Planning department and participated as a technician in many crucial Ecofin summits. «The figure for the third quarter is above expectations, but we are still talking about a rebound. Businesses have fulfilled orders that remained "suspended" along the supply chain and Italian consumption has also made up for the lost months. Unfortunately it is a temporary situation, with the new restrictive measures we will have a negative fourth quarter and probably also the first of 2021 ».
What is your forecast on the main indicators of Italian public finance for 2020 and 2021?
«2020 should end with a deficit/GDP ratio of 10,9% and a debt/GDP ratio of 155,8%. Next year, a deficit of 7,3% and a debt/GDP ratio of 156,3% can be estimated».
SAccording to S&P analysts, the pil it will not return to 2019 levels until 2023. On which major factors will the sustainability of the Italian debt be played?
«European funds must be used appropriately, all of them including the ESM. If growth is structural, the debt/GDP ratio could remain at sustainable levels. The accommodative policy of the ECB and significant economic growth would secure our public finances. However, Italy will have to move from a phase in which the income of families and businesses is artificially supported to a phase of public and private investments capable of stimulating growth".
What will be the absolute number or percentage that the Treasury will still want to “not exceed” what about our debt?
«There is no default value, it is all conditioned by the numbers of economic growth. With strong growth, and in the hypothesis of low interest rates for a long time thanks to the ECB, a reduction in the debt/GDP ratio is also conceivable".
The armistice on the assessment of the Italian debt, which evidently shows signs of deterioration compared to recent months, what is the reason for it? Only to policies monetary policies of the ECB or is there someother?
«The rating companies have made correct assessments. However, the judgment remains suspended, but the protection of the ECB and the arrival of European measures to stimulate the economy certainly remain in the background, decisive for the future of the Eurozone. The judgment is only postponed: Italy will still have 2-3 years in which it will be able to get back on track with the Next Generation EU program, 750 billion euros that the Union has allocated for 2021-2027".
Qwhich will be the key points to stay on course of Italian growth convergent with the rest of thetheEurope?
«The country will have to equip itself with a credible and feasible economic programme. The European plan for economic growth envisages two broad lines of development, "green" and sustainable investments and those for the new digitalisation. Within these programs there can be "everything". If Italy misses the train to recovery, it won't just be a problem of Italian public finances because the stability of the eurozone and consequently of the single currency will once again be called into question".
The pandemic crisis seems to have put back the main leaders of theeurozone on the difficult and tortuous road of a new and necessary phase of aprogress ofEuropean integration.
«The funds for growth will arrive after the summer, even if a 10% advance is likely that can already be used next spring, after the approval process by the various national Parliaments. If all these financial measures allocated by the European Union were to work, then further forms of issuing debt resources, not just temporary ones, could return to the agenda. The next Ecofin will in any case have important innovations for the banking union, then we will move on to bank deposit insurance in the coming months, a real hub for financial integration. In addition, the Conference on the future of Europe will open in May, which will continue for a couple of years and could plan a further process of reallocation of responsibilities between the Member States and the Union".
