by Eric J. Lyman
ROME, Aug. 19 (Xinhua) -- The Italian government's debt ticked lower in June, the Bank of Italy reported positive news for one of the European Union's most debt-ridden countries, though analysts warned any downward trend could be reversed by proposed government policies.
Friday's Bank of Italy report showed the government's total debt was 2.323 trillion euros (2.659 trillion U.S. dollars) in June, about 4 billion euros (4.6 billion U.S. dollars) less than in May, when it reached its all-time high in euro terms. The debt is equivalent to around 132 percent of the country's gross domestic product, the second highest level in the European Union in GDP terms, behind only Greece.
Before June, the value of Italy's government debt climbed for six consecutive months up to the peak in May.
"High debt levels create two kinds of problems," Carlo Altomonte, an economist specializing on European economies with Milan's Bocconi University, told Xinhua. "First, it creates problems with the European Union rules on overall debt and on government deficits. But more importantly, it drives up the cost of borrowing money by making investors worry about whether the country can continue to pay the debt."
Altomonte went on: "Higher yields on government bonds make the government spend more, that adds to the debt, makes investors more nervous, raising yields further," he said. "It can be a difficult spiral."
Ugo Arrigo, economics and statistics professor at Bicocca University in Milan, said in an interview that Italy is walking a narrow line on debt.
"Right now Italy has to sell an average of 7 billion euros (8 billion U.S. dollars) every day in order to keep the government running and also pay off debt it has already accumulated," Arrigo said. "The more expensive it becomes to finance the debt the more difficult that balance becomes."
The slightly lower debt levels for June are considered a small victory for the government of Prime Minister Giuseppe Conte, which took power on June 1. But that same day, the yield on Italy's benchmark 10-year bonds, on secondary markets, reached 3.17 percent, their highest level in more than four years.
That is because investors fear the debt will soon start climbing again. In the wake of the deadly bridge collapse near the northern port city of Genoa, Interior Minister Matteo Salvini said the government was mulling a request for the European Union to give the country more flexibility with EU deficit limits in order to pay for increased investment in transport infrastructure.
Even before that, the Conte government has said it would champion other policies most economists have said would add to the debt. Among those proposals: a flat tax on business profits and, later on, for personal income that would almost surely reduce tax revenue, and a basic income for Italians that would increase government spending.
"A lot of investor decision making is emotional or based on some level of speculation," Altomonte said. "There is probably no immediate danger for Italy in terms of economic trouble, but it needs positive news to help settle investor worries. A tiny reduction in debt for one month is not going to be enough."
