What is the weak link in the European economy? “Italy”, the experts questioned by the Financial Times answered almost unanimously. A few numbers are enough to explain the reasons for such harmony, and the reasons behind the growing pressure that is felt in Italy against the prospect of a new rate increase by the ECB. The numbers, as always, are those of public debt.
Italy, explain the 2023 Guidelines on the management of public debt prepared by the Treasury, will have to issue medium-long term securities between 310 and 320 billion in the next 12 months. The forecast considers the punctual disbursement of the expected installments for the Recovery (the 55 objectives for the second half of 2022 are now under examination by the community authorities together with the letter requesting the go-ahead for the third Pnrr installment), without which the amount of BTPs this year could rise to around 350 billion euros. That is, even further from the 278 billion euros placed in 2022. Also considering Treasury bonds and other short-term securities, the maximum level of issues defined by the budget law stands at 510 billion: 86 more than the total of 424 billion last year.
The end of free debt
All this is happening while the era of (apparently) free debt has finally ended. The BTPs of 2022 recorded an average issue cost of 1.71%, i.e. more than 17 times the historical minimum of 0.1% (in 2020 it was 0.59%). To find a higher level, it is necessary to go back to 2.08% in 2013, in Italy that has just come out of trouble from the sovereign debt crisis which at the end of 2011 led to the crisis of the Berlusconi government and the emergency measures initiated by the Monti executive with the introduction of the Imu, the Fornero pension reform and so on.
In recent months, this dynamic has forced continuous upward updates in the calculations on the weight of interest on our public budget. In 2023-2025, according to the Def approved last April by the Draghi government, Italy would have had to pay 186.066 billion in interest. In the tables attached to the Budget Law, which also rests on over 21 billion in additional deficit compared to the trend, the bill for the same three-year period instead rises to 270.207 billion, with an increase of 45.2% which in nominal terms is worth 19.4 billion on 2023, 30 on 2024 and 34.7 on 2025.
Inflationary scenario and rate hike
To understand the extent of the problem, and the size of the fiscal spaces that close with the rush of interest spending, it suffices to consider that this additional cost is worth four times the funds allocated by the maneuver to cut the tax wedge only in 2023, while if we look at 2024 and 2025, the ratio rises respectively to six and seven times.