A person waves the Italian national flag in Piazza della Signoria in Florence, Italy. (Photographer: Chris Ratcliffe/Bloomberg)

A Bundesbank Economist Has a Radical Plan to Halve Italy's Debt

(Bloomberg) -- Italy’s populist government doesn’t need to ask for money from European partners to halve its debt -- it could tap the large private wealth of its citizens, Bundesbank economist Karsten Wendorff suggested.

The radical proposal echoes the debate in Italian media over a potential “wealth tax.” Unlike a tax, however, it wouldn’t directly eat into the patrimony of the country’s families, according to its proponent, who heads the German central bank’s public finance department.

“Instead of a European fund that buys Italian government bonds and that is ultimately backed by European taxpayers, a national fund should be created,” Wendorff wrote in the Frankfurter Allgemeine Zeitung Saturday. “This fund would buy Italian government bonds.”

Such a fund would be financed by “national solidarity bonds” that Italian households would be obliged to purchase -- for example, to the tune of 20 percent of their net wealth. At such a rate “almost half of Italian government debt could be converted into solidarity bonds.”

A Bundesbank spokesman said Wendorff was writing in his personal capacity.

Rome on Friday avoided a second rating downgrade in a week as S&P Global Ratings decided only to lower its outlook. The move followed another week of acrimonious clashes with the European Commission and European Central Bank President Mario Draghi over plans to expand spending that flaunt EU rules. Prime Minister Giuseppe Conte told Bloomberg on Wednesday that there’s no “Plan B” for the fiscal program.

Italy isn’t a poor country, Wendorff argues, it doesn’t need debt relief nor should it be the “plaything” of financial markets. Yet its government’s plans show that European budget rules are toothless, barring the way to further European solidarity and burden-sharing. The way out from this conundrum: making “Italian taxpayers ultimately liable for the debts of their state.”

“Italian voters would be directly involved in solving an Italian problem, depending on their financial capacity,” he wrote. “This would strengthen confidence in a sound fiscal policy for the future. Ultimately, a national problem would be solved by national solidarity.”

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