Graduate Institute of International and Development Studies Working Paper 13/2014
[Introduction] Italy has the fourth largest stock of public debt in the world, the second highest debt-to-GDP ratio in the G7 group of advanced economies, and the highest debt service ratio in the G7. Although there is no strong evidence that public debt has a causal effect on economic growth (Panizza and Presbitero, 2013), the level and composition of public debt have important effects on economic stability and the wellbeing of current and future generations. The objective of this paper is to discuss the consequences of high public debt in Italy and to evaluate the desirability and feasibility of alternative debt-reduction policies. The paper concludes that official forecasts on the medium-term evolution of Italian debt are optimistic. Italy needs to rollover €550 billion of debt over 2014-16. Loss of market access is a serious risk and Italy should think about possible policies aimed at avoiding a rushed debt restructuring exercise.