The debt to GDP ratio of Italy remains at 130% of GDP, the second highest in the euro area. Moreover, under current policy settings it is poised even to increase, rather than fall, over the next few years. This outlook has led the European Commission to start a debt-driven excessive deficit procedure against the country. The key issue is not so much the deficit, which has remained below 3% of GDP so far, but the fact that public debt is not falling. Whether or not this procedure will go beyond its early stages is not clear. But it is certain that in the end, all the European authorities could do is to impose a fine of a few decimals of a percent of GDP.
The real arbiter of Italian public finances thus remains the financial markets where the Italian Treasury has to sell its debt to finance both the current deficit and the roll-over of past debt coming due.
In this context, the holdings structure of government debt becomes important. Knowing who are the ultimate holders of Italian public debt is crucial for answering two important questions:
- What is the proportion of ‘patient’ holders, and those likely to trade frequently?
- Who would carry the losses should there be a default?