Daily Management Review

Italy is close to reducing the debt load


09/15/2017


Italy, suffering from the second largest debt burden in the euro area after Greece, may be close to solving this problem, writes Bloomberg.



This optimistic forecast is partly explained by the economy, which has been growing the 10th consecutive quarter and maintained growth in the last quarter. In addition, the country is helped by the acceleration of inflation and a fall in bond yields. The combination of these factors brings the government closer to reducing the burden.

For the first time after the financial crisis, the country is watching the convergence of its economic growth, its debt, its inflation rate, and its average yield on government securities. This year, GDP can grow more than the public debt, which will reduce the ratio of debt to GDP. This is the goal that the government has sought to achieve over time, as Italian Finance Minister Pier Carlo Padoan said in a Twitter message on Thursday. "After stabilizing the debt, we need to send it along the path of reduction, otherwise the country risk will remain high," he said.

According to the minister, the economy is "back to normal". The General Confederation of Italian Industry (Confindustria) predicts that next year the debt will decrease to 131.8% of GDP from 132.6% in 2017. Confindustria also raised the forecast for economic growth this year to 1.5%. The Ministry of Finance will present its updated forecast next week.

According to Eurostat, in the II quarter of Italy's GDP grew by 0.4% compared to the previous quarter and by 1.5% in annual terms.

Recall that the recession, which ended in 2014, weighed on the shoulders of Italian banks 349 billion euros of bad loans, which is one third of the total in Europe. At that, the confused judicial system and sluggish economic growth made it difficult to reduce the NPL share.

But a number of measures taken by the state, including investments and a plan to save Monte dei Paschi, the oldest bank in the world, helped to improve the situation.

Morgan Stanley noted that progress has been made, but there remain vulnerabilities, with 60-70 billion euros for repayment of non-performing loans now on the way, and to reach the average European level of the NPL will take almost 10 years.

Analysts at the US bank said that creating a "bad" bank or a public asset management company would be a key step in solving the NPL problem in Italy.

The idea of a "bad" bank is supported by the institutions of the European Union, including the central bank and the regional banking authority, but Germany opposed such a measure, as representatives of this country are reluctant to provide financial assistance at the expense of taxpayers.

source: bloomberg.com






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