Italy Can’t Escape Constraint of Its Debt, Giorgetti Says #ItalyFinance

(Bloomberg) — Italy can’t spend beyond its means because of its mammoth debt, Finance Minister Giancarlo Giorgetti said.

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“It’s an element that is a constraint which we can’t avoid,” Giorgetti said speaking at an event in Rome on Monday. “It’s our main constraint even before the rules defined by the European Union.”

As Europe moves to increase defense spending, Italy is having trouble keeping pace due to its huge debt burden which stands at over 130% of economic output. Giorgetti has recently pushed back against excessive outlays on concerns it could spark a loss of confidence in Italy and an increase in borrowing costs.

Prime Minister Giorgia Meloni is particularly sensitive to market pressures after witnessing the government led by Silvio Berlusconi — in which she was a junior minister — fall in 2011 following a spike in yields. The message was further instilled in her when she came to power in October 2022 just as UK leader Liz Truss was forced out of her job amid investor alarm over her economic policies.

That is why Giorgetti and Meloni have been particularly cautious about their economic policy choices steering the country clear of market tensions. The spread between Italian and German 10-year bonds, a key measure of risk, is currently below 115 basis points and Meloni plans to keep it that way.

Yet, with high debt and a relatively weak economy Italy tends to be the first target of market instability. GDP grew 0.7% last year, instead of the government’s 1% target and is seen increasing just 0.8% this year by the Bank of Italy.

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