How Italy’s budget woes could escalate

Brussels has rejected Italy’s 2019 budget, setting its governing coalition on a collision course with the commission. Rome has three weeks to submit a new spending plan or face millions of euros in fines

 €30bn

1. DEFICIT
Government of Giuseppe Conte pledges lower retirement age, basic income for poor, tax cuts. Deficit will increase to 2.4% of GDP* – adding some €40 billion to public debt

2. PUBLIC DEBT
Debt from past deficits has reached €2.3 trillion or 132% of GDP. EU rules limit deficit to 3% of GDP with public debt no higher than 60% of GDP

3. TARGET2 DEBT
Bank of Italy’s Target2 liabilities – cross-border debt owed to eurozone central banks – hit €492.5bn in August. Target2 pushes total debt to €2.8 trillion or 160% of GDP

4. JUNK BONDS
Rating agency Moody’s downgrades Italian debt to one notch above junk. Foreign investors dump €58 billion of Italian bonds in May and June, pushing up yields and borrowing costs

5. BAD DEBTS
Italy’s banks are sitting on €360 billion pile of non-performing loans Sofferenze – worst category
€130bn        €200bn
Past due  Unlikely to pay

6. CAPITAL FLIGHT
Further outflows of €17 billion by foreign investors are recorded in May and June, pushing flight in portfolio investments to €75 billion

7. EUROPEAN CENTRAL BANK
Eurozone banks can borrow from ECB at zero interest rate, but if government bonds are rated junk, Italy will face high rates. Credit crunch: Businesses and consumers can no longer afford credit. People earn less, spend less – tax revenues plummet

*Gross domestic product: Value of all goods and services calculated on annual basis



Sources: Jack Ewing, Bruegel, Seeking Alpha Pictures: Getty Images © GRAPHIC NEWS