A precise season of European monetary policy has come to an end. And as a result, the Italian debt returns to "dance". ECB announcement to raise interest rates, expected for some time in the face of too high and persistent inflation, has transversely shaken the financial markets. The impact of rate hikes in the Eurozone will clearly not be the same for everyone. Unlike others, the Italian sovereign debt, with its size of over 2.740 billion euros, must be handled with extreme care, financial and above all political. The Catholic economist Massimo Bordignon he is one of the leading experts on the structure and formation of our public debt. With his colleague Gilberto Turati he has just published the book "Public debt. How we got there and how to survive it” (ed. Life and Thought).
Professor Bordignon, immediately after the ECB's announcement Treasuries came under heavy pressure. Debt returns a big problem?
«In the immediate future I would say no, perhaps even for 2023 there will be no particular critical issues. Markets had already partly priced in the ECB's announcement. Such high and unanticipated inflation helps the big debtors. A large part of the Italian debt stock is not indexed. With inflation, tax revenues also increase and the debt/GDP ratio tends to improve».
What if economic growth were to slow down sharply after the summer?
«Growth forecasts are still positive, this year we should grow by more than 2% and even in 2023, barring disruptions in terms of energy and a blockade on Russian gas, there will be a positive sign. There are good signs from tourism and the propensity to spend after two years of partially postponed consumption due to the pandemic. Then there is the grounding of the Pnrr ».
Compared to the past, what effects could a season of persistent inflation have on our public finances in the medium term?
«We have about 2.700 billion of public debt, with an average duration of 7-7.5 years. Approximately 350-400 billion of securities mature each year, the effect of the rate increase is incorporated only on the new debt. On the other hand, inflation produces a positive effect on the residual stock».
The ECB also communicated a sort of significant slowdown in the purchase of sovereign bonds. Have the markets also discounted this change in strategy?
«Starting from 2015, with the monetary relaxation policies and then with the pandemic, the ECB bought almost 30% of the Italian debt. As long as the Italian securities remain in the ECB's portfolio there are no effects, indeed we do not even pay interest on that debt. And the ECB will keep them on its balance sheet for a long time. The problem is another, if the spread were to rise dramatically again, what kind of intervention would the ECB be willing to implement?».
So after the 2023 elections could we go back to dancing?
«The ECB could limit itself to buying Italian debt to replace the maturing one in its portfolio. It might not be enough."
In addition to the Frankfurt action, the sustainability of our sovereign debt is linked to overall confidence in the Italian system. That is an immaterial fact.
«A new fiscal pact, based on our credible commitment to gradually reduce the debt-to-GDP ratio, could be the solution. In this context, we must also respect the reform plan agreed with Brussels to use the funds of the Pnrr".
What guarantees do you need to demonstrate that you can manage this reform plan? The Draghi government has a horizon of a few months.
«It is clear that the institutional caliber of the Draghi government has guaranteed very broad confidence in the commitments made by Italy. What guarantees will there be in a year?».
Now the financial markets are also voting.
«The fears about the stability of the Italian debt are also linked to the instability of our political framework. Let's try to imagine a future where the political forces in government return to contest the European rules, the single currency and the plans of the Pnrr. Wouldn't you be frightened?"
Classical economists from Monti to Bordignon see only the increase in debt but as they are no longer valid industrial economists, they do not know how to push industrial GDP too low today by less than 15% to make it double to 30%. There are 400 billion of GDP each year additive passing from fossils to pumping and green chemistry. That is, an annual GDP of 3500 billion.