Finance

Italy financial stability underestimated

Italy debt has risen less than in other major EU countries

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America24, 26 gennaio 2014, 07:37

Italy’s financial strength is underestimated by investors because the country still has significant private wealth and a competitive manufacturing industry, according to the economist Marco Fortis.

“Italy’s sovereign debt is not at risk,” said Fortis, a high-profile Italian economist who works for Fondazione Edison and teaches at Catholic University of Milan.

He acknowledged that the country has the second highest public debt in the European Union as a percentage of GDP but noted that it only the 14th in percentage of household net financial assets. According to the EU’s statistical office Eurostat, the net financial assets of households amounted to 178% of GDP in 2012 compared with 128% for Germany, the only major eurozone economy to have maintained a AAA credit rating.

GDP is not the only denominator to measure public debt, “private wealth is another one and by far more important,” according to Fortis.

In 2012, public debt represented 71% of household net financial assets in Italy, 65% in France and 63% in Germany, which both have higher credit rating than Italy, according to Fondazione Edison calculations based on Eurostat data.

Meanwhile, Greece’s public debt represented 249% of household net financial assets in 2012 after the restructuring of the public debt.

On Dec 13, Standard & Poor's Ratings Services affirmed its BBB long-term and A-2 short-term sovereign credit ratings for Italy while keeping the negative outlook.

“The idea that Italy is a country full of debt is not true,” Fortis said. He added that over the past years, Italian public debt has increased less than in other advanced economies.

From the end of September 2008 to end June 2013, gross government debt rose 26% in Italy to 2.08 trillion euros, compared to a 31% increase in Germany, a 48% rise in France, a 67% growth in the U.S., a 106% rise in the UK and a 135% jump in Spain, according to Eurostat.

Between 1996-2012, Italy has accumulated a primary budget surplus of 554 billion euros, indicating that the country has “paid the interests (on its debt) in cash” and not by issuing further debt like most other advanced economies did, including the U.S., the UK, France and Spain, Fortis said.

Over the same period, Germany registered a primary surplus of 310 billion euros, Spain a 154 billion deficit, France a 271 billion deficit and the UK a 319 billion deficit. The primary budget indicates the balance of the public pursue before the payment of interests on the debt.

According to the European Commission findings on fiscal sustainability, Italy is a low-risk country in the short-term and a medium-risk nation in the medium to long-term but with a lower risk rating than France, the UK or Spain. When adding “ageing-induced fiscal risks”, the commission views Italy as a low-risk country in the medium to long-term “thanks to the reform of the pension system” carried out in 2012, Fortis said.

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