Bloomberg reports that Italy has a €123.2 billion debt mountain from COVID-backed state support which, as of June 30, is outstanding. The debt has been rising too as it has increased from the previous quarter of €118 billion. Despite not being the largest country it has the largest government-guaranteed debt yet to be repaid in the Eurozone. Check out below the growing level of Italian debt from the state-backed loans.
The problem that is building is that the energy crisis is lingering on, inflation remains high, and Italy is expected to contract 0.2% in 2023, according to the IMF. This means that the debt burden can be a growing political worry as more and more companies will struggle to meet repayments on many of these loans (just under 50%) as they mature from 2024 onwards.
So, on one hand, this is not an immediate risk for the euro. However, the market is sensitive to Italian debt and if this looks like getting out of control it could start to weigh on the euro over the medium to longer term. The environment which will make this worse will be if the Russia-Ukraine crisis goes on, energy prices stay high, Italy’s economy contracts, and inflation pressures remain elevated. This would be the environment that would pressure not only Italy, of course, but the whole Eurozone. However, Italy’s debt problems have been a major factor for the euro in the past and this risk should be monitored in case it accelerates. Bear in mind that the bite of this risk would not really be felt until we approach 2024, so it is a risk in the medium-term horizon. You can read the full Bloomberg article here.