Who owns italian sovereign debt

Institutes run by CEPS. Download Publication Downloads. Who would carry the losses should there be a default? Policy Contribution. A transatlantic divide? External Contribution. Moreover, the trend in nominal GDP, interest rates and primary balance is subject to a large number of added variables — the price of oil, for example, or business conditions in other countries.

Accordingly, forecasts for trends in national economies usually enlist complex models reflecting the main interactions involved; these are models in which exogenous variables, used to derive plausible assumptions, have a role to play. As these forecasts extend no further into the future than the year , assumptions are made for the period thereafter: we assume that the post trend in real GDP 0. We assume a rate of inflation equal to two percent.

The primary-deficit forecast continues perpetuating the outlook, and we assume that the real rate of interest will hold constant beyond the period already forecasted. As the predictions featured here were generated prior to the formation of the current government in Italy, we assume that new, additional state outlays have not been factored in here.

The projection posits annual budget surpluses that will begin in While this path is sustainable from the point of view of debt capacity, it hardly seems realistic today.

Deviations from Scenario 1: 5 2. This includes a higher level of basic income, a lower retirement age and reductions in tax revenues through lower income taxes. All of this would increase the primary deficit by around 90 billion euro each year five percent relative to nominal GDP.

Accordingly, in this scenario we initially assume a primary deficit that each year is five percentage points higher than under the baseline scenario. A particularly favourable assumption is also made about the effects that additional expenditures will have on production: the entirety of added outlays will affect GDP multiplier equal to 1.

We also assume that the higher level of nominal GDP will also lead to higher tax revenues. Furthermore, we assume that the effect on GDP will dissipate over a period of five years. The increase in primary balance owing to GDP effects can thus be expected to taper off as well. Under this scenario, it can be seen that the debt ratio will subside slightly after a brief upturn — after which it will significantly and permanently increase. If a vanishing multiplier effect is assumed, the outcome expected will be a situation of sovereign debt that is no longer sustainable.

Source : Calculations by the authors based on data sources given in Table 1. In Scenario 3, we assume a multiplier of 0. The forecast that results here does not even include a short-term drop in debt ratio. As public deficits under this scenario exceed five percent in the years to come, they are in serious violation of the Maastricht criteria three percent.

In light of this, it is doubtful whether creditors would be persuaded to leave risk premiums at their current levels. As risk premiums are meant to compensate for possible losses due to default, a rate of interest that exceeds a certain rate viewed as safe by two percentage points reflects an expected likelihood of two percent that the amount invested will be completely lost.

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Other options. Login Who holds Italian government debt? Feeds Atom RSS 1. Phil Wilkin.