Fiscal Prospects for Italy

Abstract

After the pandemic peak, public debt over GDP in Italy has fallen sharply thanks to high real and nominal economic growth; a few institutional changes have further reduced concerns about its medium-term sustainability. Yet, the debt ratio is still too high and needs to be reduced. The gradual adjustment path forecasted by the new Eu fiscal rules seems broadly able to reach this objective without imposing too harsh policies that might turn out to be economically and politically counter-productive. Still, without a serious reform of the Eu and the Eu budget, there remains the problem of how Italy and the other European countries will finance the new spending priorities dictated by the green deal and the mutated geo-political situation. And in the longer run, the demographic shock remains the most serious concern for public debt sustainability.