An interesting set of charts on Italian public finances.
First, consider Primary Deficits:
Charts above clearly show that Italy has been running significant primary surpluses since at least 2000 and especially in 2007-2011 period. It is also expected to run strong surpluses in 2012-2017, according to IMF projections.
In fact, net of debt maintenance costs, Italy has outperformed Germany in the area of public deficits in every year other than 2008 and 2009:
Yet, Italy's gross government debt is running over 90% of GDP since 1989 and over 100% of GDP since 1992.
The problem for Italy is clearly on the side of interest payments on its debt:
Although these have moderated during the euro era, the cost is now once again rising.
Italy is but one example of debt overhang that presents long-term problems for the economy. Looking at the set of all advanced economies which experienced more than 5 years periods of debt to GDP ratio in excess of 90%, the chart below shows the relationship between growth rates in real GDP and debt:
Although the explanatory power of the relationship above is weak (ca 10% of variation), the negative relationship between debt to GDP ratio and real growth in GDP is traceable. In terms of averages:
Many caveats go along with the above numbers, but overall, two things are fairly clear: once reached, debt to GDP levels of 85-90% become hard to overcome for many economies, and once debt overhang becomes a problem, growth rates tend to falter.
First, consider Primary Deficits:
Charts above clearly show that Italy has been running significant primary surpluses since at least 2000 and especially in 2007-2011 period. It is also expected to run strong surpluses in 2012-2017, according to IMF projections.
In fact, net of debt maintenance costs, Italy has outperformed Germany in the area of public deficits in every year other than 2008 and 2009:
Yet, Italy's gross government debt is running over 90% of GDP since 1989 and over 100% of GDP since 1992.
The problem for Italy is clearly on the side of interest payments on its debt:
Although these have moderated during the euro era, the cost is now once again rising.
Italy is but one example of debt overhang that presents long-term problems for the economy. Looking at the set of all advanced economies which experienced more than 5 years periods of debt to GDP ratio in excess of 90%, the chart below shows the relationship between growth rates in real GDP and debt:
Although the explanatory power of the relationship above is weak (ca 10% of variation), the negative relationship between debt to GDP ratio and real growth in GDP is traceable. In terms of averages:
Many caveats go along with the above numbers, but overall, two things are fairly clear: once reached, debt to GDP levels of 85-90% become hard to overcome for many economies, and once debt overhang becomes a problem, growth rates tend to falter.
