Italy’s Debt Will Breach Pre-Mussolini Record on Pandemic Costs
Italy’s debt this year will exceed the country’s previous record amassed in the aftermath of World War I, laying bare the debilitating cost of the coronavirus pandemic on the euro-zone’s third-biggest economy.
The new borrowing tally of 159.8% of gross domestic product featured in a fiscal outlook ratified by Prime Minister Mario Draghi’s cabinet on Thursday. That exceeds the probable all-time high of 159.5% achieved in 1920, shortly before the era of Benito Mussolini’s fascist dictatorship.
The economic update also confirms a lower growth forecast of 4.1% this year, with a target of 4.5% once stimulus and other measures are factored in, according to a government official. It anticipates a budget deficit of 11.8%, ratcheting up borrowing by further billions of euros to protect citizens and businesses from the fallout of the pandemic.
The figures represent the first full set of economic forecasts compiled since Draghi took the helm of Italy’s response to the coronavirus, which has killed more than 115,000 and led to lockdowns that have gutted key sectors like tourism. The government has agreed to borrow 40 billion euros ($48 billion) for new stimulus measures, which pushes its overall pandemic spending so far to over 170 billion euros.
For now, Italy’s spending is backed by the European Central Bank, which is buying up government bonds to keep spreads between countries under control and make pandemic-era debt considerably less expensive to service.
With austerity being pushed far down the line to allow the government to focus on rebuilding the economy, the rebound in growth fueled by national and European Union stimulus measures should assist in helping Italy’s finances, starting next year.
The deficit is seen narrowing to 5.9% of GDP while debt should shrink to 156.3% of output in 2022, according to the forecasts. The government doesn’t plan on having the shortfall return below 3% of output until 2025, officials said.
In recent days restaurateurs and other business owners have clashed with police in Rome amid protests calling for easing of lockdown conditions and more economic support. Elsewhere, demonstrators have blocked highways as they campaign for a quicker reopening of the country.
The government has signaled that it might start easing some measures as early as later this month, prioritizing open-air activities.
Draghi has been ramping up pressure on regional governments to speed up their vaccination drives, particularly by focusing on elderly citizens. But his government is struggling to reach a target of 500,000 shots a day by the end of the month.
In line with other EU countries, Italy is holding back vaccine doses produced by Johnson & Johnson and has been facing cancellations by people scheduled to receive the Astra Zeneca Plc shot amid reports of rare blood-clot cases.
Health Minister Roberto Speranza told lawmakers that the AstraZeneca vaccine is efficient and safe, like all other vaccines currently being used in Europe. Commenting on the review of Johnson & Johnson’s vaccine, he said: “our hope is that soon there can be elements of clarity which allow us to start to use a vaccine which will be important for our campaign.”
©2021 Bloomberg L.P.