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Luiss Open: Italy, thanks to the European Central Bank, has a secret treasure to finance its debt

According to Daniel Gros, a large amount of the public debt is in the hands of the country's financial intermediaries


Italy is a high savings country. The country's households dispose of a net worth of around €10 trillion and financial assets of over €4 trillion.  This means that, in principle, the national public debt of around €2 trillion could be absorbed by Italians themselves. Moreover, the country has, for some years, a sizeable surplus, to the tune of 3% of GDP, which indicates a continuing domestic savings surplus.

The widely repeated assertion that Italy’s debt is mainly domestic is thus plausible at first sight. However, a closer look at the data reveals the need for two important qualifications.

First of all, Italian households own very little of the public debt directly. All data sources agree that the direct holdings of Italian households amount to about €100 billion, or only 5% of total public debt of about €2.250 trillion. 

The explanation is simple: a lot of debt is held by Italian financial intermediaries (banks, insurance companies, investment funds, etc.) whose ultimate beneficiaries are Italian households.

Last November, when the government tried to circumvent the markets with a special bond for households, it discovered that it is difficult to change this pattern quickly. The appeal to households to buy a large share of the debt failed.

Another implication of the dominance of financial intermediaries is that Italians read about interest rates and risk premia going up or down, but they do not perceive directly the implications of this for their own financial situation. 

For example, the government might assure the public that bank deposits and bonds are safe, but given the exposure of banks to the government it is clear that any default by the government has to lead to losses for the bank’s clients.

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