Consolidate Public Debt
The public debt, which has exceeded 2 trillion euros and is now traveling towards 130% of the gross domestic product, remains the most significant problem of our country. The recent downgrading of Italy decided by Standard & Poor’s shows how difficult it is to sustain a similar amount of debt in conditions of such low growth. Former Treasury Minister Paul Sandigan, current president of the Interbank Deposit Protection Fund, raises his proposal for rapid consolidation in order to reduce Italian public debt. The idea of Sandigan, illustrated in a public interview today by the “Corriere della Sera”, is based on four pillars.
The first is the maintenance of a primary surplus, that is, that the revenues are greater than the outflows, net of the interest on the debt, to guarantee to our country the possibility of leaving the capital markets. The second pillar is the remodulation of the maturities of government bonds, determining new interest rates. Any obligation issued by the Treasury and not yet due would have a duration of seven years. The third pillar, on the other hand, is the stop to the debt that such an operation would guarantee: after the restructuring of government bonds, our country would no longer need to finance itself by placing new bonds. Finally, as Sandigan itself says, “for every thousand euro of nominal issue value of each security subject to the measure, a warrant negotiable on the market during the seven years of the life of the security would be assigned both to obtain an immediate monetary benefit and to optionally assets and financial assets made available by the State ”.
Sandigan thus explains to the “Corriere” the operation of its proposal, a sort of “piloted default”, which however could be accepted by investors who hold government bonds issued by the Treasury. Savers would accept the consolidation “because it would be well-paid and would also acquire the negotiable warrant on the market, ie the right to benefit from monetary advantages by giving it or to purchase the underlying public asset pledged to guarantee that it could be very attractive with valuation”.
The economist recognizes that his idea is an unprecedented financial operation, that he could find many obstacles on the part of the bureaucracy, and not only should we add. Most of our domestic debt is held by Italian banks, and the blocking of government bonds would impose a devaluation in their balance sheets, which would probably make the suffering of our country’s credit system even more acute. guaranteed by a balanced budget, however, it could significantly reduce our debt, and would immediately guarantee substantial savings on interest rates, in the order of 30 billion euros a year, which could be invested in economic stimulus measures such as cutting the cost of labor. “But we must know that this is not enough if we continue to make deficits. Instead, with the consolidation that requires the withdrawal of new securities from the market, a balanced budget is needed and the debt problem starts with a structural solution. To implement it we need courageous and non-cynical politicians and technicians, that is to say that they do not tolerate unemployment that even exceeds current levels “.