(BFM Bourse) – An air of deja vu. The issue of Italian debt is once again the focus of investor concerns as the country is going through a serious political crisis. Over the years, Italy has indeed accumulated a debt representing some 150% of GDP, the highest ratio in the euro zone behind Greece.
The latest episode in the tumultuous political life in Italy, with the announcement of the resignation of Mario Draghi, admittedly refused by the president, has revived fears of a surge in the country’s borrowing rates which could prove explosive for the euro zone.
Ten years after saying he was “ready for anything” to save the euro zone, thus preventing the implosion of the monetary bloc, will the former boss of the European Central Bank agree to stay at Italy’s bedside? Everything will be decided in Parliament next Wednesday. The Italian political upheavals come in any case “at the worst time” for Christine Lagarde, who succeeded her at the head of the ECB in 2019, commented analysts at ING bank.
The President of the ECB will have to announce on Thursday the outlines of a new system aimed at curbing the increase in interest rate differentials between countries in the euro zone. However, “we can hardly speak of an unjustified rise in the current political situation” of Italy, judge ING.
The fear of a spread widening
The spread, the closely watched difference between German and Italian ten-year interest rates, rose to 225 points on Friday. Shortly after the arrival at the controls of Italy of “Super Mario” in February 2021, this gap between these two rates had fallen below the 100 point mark for the first time since 2015. Despite the intact aura of the he former head of the ECB, the spread has started to rise in an economic context clouded by soaring prices, the war in Ukraine and the resurgence of the coronavirus pandemic. “I am not a shield against events, I am a human being,” he stressed in May.
When the ECB signaled the end of its monetary support for the economy in mid-June, the spread had even soared to 245 points, the highest in two years. “If the Italian political world is playing at causing an internal crisis in the midst of war and under the threat of an energy shortage, is the induced increase in Italy’s spread excessive from a fundamental point of view? Should the ECB really counter it?” tweeted Eric Dor, director of economic studies at the IESEG business school.
A future wall of debt?
The political crisis triggered on Thursday by the refusal of the 5 Star Movement to vote for confidence in the Senate has put a strain on the nerves of investors, who feared the worst, namely the resignation of Mario Draghi. The announcement of his resignation, after a year and five months at the helm of the country, did indeed fall on Thursday evening, plunging the country into a stupor, but was immediately refused by President Sergio Mattarella.
“The arrival of Mario Draghi to power in Rome, crowned with his reputation as the savior of the euro zone, had been seen by the markets as a miracle”, commented to AFP Gilles Moëc, chief economist of the Axa group. “Any signal that Draghi will not survive the 2023 legislative elections, or even step down before then, is cause for concern for the markets,” he said.
In particular, according to him, there is “the question of the continuation” of the recovery program and the achievement of the objectives claimed by Brussels to benefit from the some 200 billion euros promised to Rome. Italy may have posted a 6.6% increase in GDP in 2021, a rate not seen since 1976, but questions about sustainable growth persist.
“It was a simple rebound” after the 9% plunge in GDP in 2020, due to the pandemic, said Salomon Fiedler, economist at the investment bank Berenberg. “Since the debt crisis in 2012, Italy hasn’t really made progress, some reforms have been started, deficits have fallen, but growth is still modest and debt has increased considerably,” he said. he told AFP.
Over the years, Italy has accumulated a debt of more than 2,700 billion euros, or some 150% of GDP, the highest ratio in the euro zone behind Greece.
(With AFP)
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