Italy Has Just Set A Record For Having The Highest Debt In History

One of the corners of Venice (Photo by Tom Podmore on Unsplash)

JAKARTA - Driven by a weaker euro and higher prices, Italy's government debt hit an all-time high in mid-year.

The Public Finances supplement of the central bank's monthly bulletin released Tuesday August 16 said debt totaled 2.766 trillion euros (2.812 trillion US dollars), the highest ever in absolute terms.

The total is 1.9 percent higher than the 2.714 trillion euros (2.759 trillion dollars) at the start of the year.

A weaker euro has been one of the contributors to rising debt levels, as most of Italy's debt is priced in euros.

In late June, when data in Italy's central bank report was tabulated, the dollar and euro began trading on roughly equal footing with the dollar briefly topping the euro several times in July.

Higher prices have been a mixed factor in public debt growth, the central bank said.

Higher prices have pushed tax revenue higher: Italy's central bank report said tax revenue had increased 11.9 percent in the first six months over the same period last year, adding an additional 23.2 billion euros (23.6 billion dollars) ) to the government treasury.

But inflation combined with other factors such as political uncertainty in the country and concerns about the economic impact of the Ukraine crisis have pushed bond yields to their highest since 2014.

As of Tuesday (16/8/2022), the yield on the 10-year Italian government bond was 3.135 percent. That's down from a peak of more than 4.0 percent in mid-June, but up from 1.089 percent at the start of the year.

Higher bond yields, which reflect investor anxiety about a country's economic prospects, increase the government's cost of borrowing money.

The increase in public spending is another major factor behind the increase in the country's debt burden, as the government takes steps to help the country escape the negative economic impact of the COVID-19 pandemic.

One of the factors that helped Italy's debt-related situation this year was the return of tourism. According to Italy's JFC Observatory, tourist tax revenues are up nearly 80 percent so far this year compared to the same period in 2021, as the sector recovers from travel restrictions from the pandemic.