A quick consideration on the Italian debt.

Here are the data on the primary net balance of the three main economies of the Eurozone from 1992 (year of the signing of the unhappy Treaty of Maastricht) to 2019, taken from the World Economic Outlook of last October:

france germany italy
1992 -24,196 0152 10,647
1993 -42,178 -6773 17,429
1994 -31,066 6,588 13,487
1995 -27,143 -119622 30268
1996 -10,479 -9368 38915
1997 -8428 2,002 61619
1998 6,686 9,773 50952
1999 14,576 22,191 50669
2000 18,473 25,384 42427
2001 18707 -8.65 31,219
2002 -8677 -26,835 29,997
2003 -24,623 -23,445 19809
2004 -18,401 -17,801 13,999
2005 -16,188 -19,436 3,379
2006 -1147 17.92 11:13
2007 -3061 66.81 49.49
2008 -12,246 56534 33863
2009 -95,664 -18,693 -16,193
2010 -91,912 -57,411 -1347
2011 -55,222 30912 12,889
2012 -53.23 51083 33,629
2013 -40,517 41967 27,778
2014 -39,766 53312 22,026
2015 -38,473 61835 22,077
2016 -40,137 66803 20788
2017 -25,982 67519 21,331
2018 -21,352 85973 24497
2019 -44,403 60385 24,878

I remember that the primary balance is the difference between the public budget revenue and all expenditure except interest . The negative sign indicates a deficit.

You will notice that, if we exclude interest (huge for known reasons) from the calculation, Italy has gone into deficit in just two years: 2009 and 2010.

I will then let you calculate the accumulated of these balances by year, providing you with the solution. In France, the cumulated balances amount to -716 billion, in Germany to 419 billion, in Italy to 702 billion.

Net of interest, Italy is the country that has saved the most, and in fact from 1994 to 2007 its debt fell, reaching 126% to 100% of GDP, despite the inheritance of very high interest rates for current standards. Given the Treasury Department's strategy of lengthening maturities successfully, the average cost of debt, still roughly measured as the ratio between interest expenditure in one year and the stock of debt at the beginning of the same year, is still relatively high values ​​compared to the prevailing rates on the market. As an example, in 2019 the interest expense was about 60 billion, which compared to the 2380 billion of debt existing at the beginning of the year give an average ex post rate of about 2.5%. To understand, if the average rate had been the one obtained at the ten-year BTP auctions at the beginning of 2020 (0.94%) the interest "account" would have been much lower (22 billion), and if instead it had been the one that came up at the last auction ( that at the beginning of June, equal to 1.91%), the bill would have dropped to 45 billion.

Warning! This is not the idiot reasoning of those who say "you have increased your interest expenditure because the spread has increased"! The interest paid on the securities is that agreed upon at the time of issue and therefore the spread affects the total interest paid, as it affects the latest auctions, which are a small fraction of the total debt, so much so that despite Borghi (!) total interest expenditure continues to decline. Of course, if a greater spread lasts for ten years, in the end the debt will cost everything more on average, and this is obvious, but the reasoning I wanted to do here does not look to the past, but to the future, which is a future of interest rates low and decreasing.

Since everyone agrees to see that now interest rates are at a historic low, and that it will remain for a while ', and because unlike Germany, where today happens this (really happened for a while', but the Courier only realizes it today), yesterday this was happening, and further back in time this was happening (and going further back is the other), Italy has never defaulted and in the last thirty years it has a record of primary surplus , it is not clear why so much nervousness about the Italian debt.

Of course, the debt will grow, but its ratio to GDP will grow above all if, by not making debt to restart the economy, we will kill GDP. At that point, the debt will become unsustainable, because we will have eliminated Italy's ability to create value and therefore tax revenue with which to honor its commitments (which it has always managed to do). A courageous policy today would serve precisely to avoid problems tomorrow, also because now the rates are low, who knows tomorrow! If interest rates start to rise again, it is clear that the time to get into debt would be now! But in any case, if the downward trend persists, the interest expenditure will be destined to decrease and the primary surplus will be transformed into a surplus tout court (where it is considered useful: we know that it is not necessary because the debt / GDP ratio decreases). In hypothesis, after ten years of zero interest (assuming that the situation lasts – and we know that it will not last) the cost of debt would be zero, and the primary surplus would coincide with the overall one!

So, do we have to worry about a state that has saved 700 billion since 1992, or a state like France, which has squandered just as many since 1992 and which is in full crisis with twin deficits ?

This seems so obvious to me, but perhaps I am strange, that you have recklessly elected, and the markets that you have not elected will be right, and that, according to what is rumored in the corridors, unable to use the abacus (and a minimum of perspective) as I have done here, they will inflict us a downgrade if we do not get into debt with the MES (i.e. they command, even if you have not voted for them, and among other things they command against their interest, showing that they do not deserve the power that they took it, because their irrationality is now full-blown, and in the case that concerns us here it appeared when they acclaimed Monti, which made the debt / GDP ratio grow, as we have said here right away , and as some economist not abundant scientific production still has not understood ).

Of one thing, however, I am sure: at MEF they are not bad, there is no conspiracy. Subalternity has inscribed it in the double helix of their DNA, and is, if we like, the dual of their feeling supermen, of considering themselves a span above those cialtroni of (other) Italians. We must never forget that the left is made up of Italians who feel superior to other Italians as the moral heirs of those who told themselves that they had won a war that the country had lost, and who today legitimize their moral superiority by joining to what they call a peace project (ignoring the fact that having lost a war has given us peace), and boasting a good reception in European salons – where they only get slapped, never giving them back! Of course, to think that your country is made of scoundrels makes it difficult, on the contrary: unpleasant and unwelcome, to defend it in European offices, especially if you lose contact with some simple data such as the ones I have shown you here and which, I am sure, none of ours ruler neither present nor past has never opposed his European "counterparts", not out of malice, but out of ignorance.

We are working on the future.

Stand firm.


This is a machine translation of a post (in Italian) written by Alberto Bagnai and published on Goofynomics at the URL https://goofynomics.blogspot.com/2020/06/una-rapida-considerazione-sul-debito.html on Tue, 23 Jun 2020 07:10:00 +0000. Some rights reserved under CC BY-NC-ND 3.0 license.