Key facts
- Italy's debt servicing costs are rising at an alarming rate, according to Economy Minister Giancarlo Giorgetti.
- Giorgetti stated that inflation is bound to rise if the wars in Ukraine and the Middle East continue.
- Italian 3-year BTP bond yields hit their highest level since June 2024 at 3.43% at a recent auction.
- A 7-year BTP bond fetched a gross yield of 3.98%, the highest since November 2023.
- Italy's public debt is projected to peak at almost 139% of GDP this year.
- The government will scrap road tax for 14.5 million cars and motorcycles from next year, costing €2.4 billion.
Italy's public debt servicing costs are escalating due to geopolitical tensions and rising interest rates, according to Economy Minister Giancarlo Giorgetti. He stated that inflation is likely to increase if conflicts in Ukraine and the Middle East persist, and that central bank rate hikes are unlikely to curb consumer prices as the issue stems from supply shocks rather than an overheated economy.
Giorgetti's comments come as Italy prepares to update its budget plans for 2027 onwards. The government is seeking to mitigate the impact of energy costs and support families' purchasing power. This includes scrapping road tax for 14.5 million cars and motorcycles from next year, at a cost of €2.4 billion, in addition to €2.8 billion already allocated this year for temporary excise duty cuts.
Furthermore, Italy plans to utilize the extra deficit flexibility offered by the European Commission under its National Escape Clause, which allows for a leeway of 0.6% of GDP, approximately €14 billion, through 2028. Giorgetti expressed optimism that the European Commission would approve this budget flexibility.
Before invoking the escape clause, Giorgetti reiterated his hope that Italy's 2025 deficit data, due to be published by national and European statistics offices ISTAT and Eurostat on September 22, would be revised downward to below the EU's 3% of GDP ceiling. This would offer Rome a potential path to exiting an EU disciplinary procedure sooner.