ECONOMIC RECOVERY IS KEPT WAITING IN ITALY

Bank of Italy announced [Economic Bulletin No. 69] that the country is  facing a new record for the general government debt in May that reaches € 2.0746 trillion, an increase of € 33.4 billion from the previous month, and about  €100 of May 2012.

In the first five months of 2013, the tax revenue totaled 143.171 billion euro, 0.7% more than in January-May 2012.

The increase in the public debt, mainly reflects the increase of € 20.4 billion in cash of the Treasury (which reached € 62.4 billion, compared to € 35.8 in the month of May of 2012) and the general government borrowing requirement of the month (€ 11.5 billion).

In May, the share of the Italy of the EFSF loans was € 2.9 billion (in total this share has reached € 30.9 billion).

In the first five months of the year the increase in debt (€ 86.1 billion) largely reflects the requirements of the government (€ 58.1 billion) and the increase in cash and cash equivalents of the Treasury (€ 28.0 billion).

The growth of debt in the first five months of 2013 has contributed to the support of almost 7 billion euro area countries in difficulty (including the portion attributable to Italy of loans from the European Financial Stability Facility EFSF, equal to 4 billion, and the payment made in April of the third tranche for subscription to the capital of the European Stability Mechanism (ESM; € 2.9 billion). This support has reached a total of €49.5 billion.

Bank of Italy also revises downwards its estimates of GDP, which in 2013 is expected to contract by 1.9% and not 1% as estimated in January, then return to "grow at a moderate pace" in 2014 with a 0.7 %. "But on the timing and intensity of recovery weigh the risks of increases in spreads on government bonds"


Conclusions:

• It 's true that most of the increase in debt is related to the increase of cash and contributions to countries in trouble, but also the basic component linked to the financial requirement increases, and this trend appears to be incompatible with a deficit 3% at year-end.
• The cumulated public debt sets the historical record and its growing trend will not change without structural shocks. The structural shocks may be of two types:

•                 A partial default on government bonds.
•                 A measure affecting the assets, mainly housing and / or                         a loan / compulsory levy on capital.
• These measures should involve a huge sum in order to bring the debt / GDP ratio between 100 and 110%,  (undoubtedly a long way, from the current level of 132%).

The temptation to collect fifty billion, which is very difficult these days, probably this time would be insufficient, as it is intended solely to delay for one year a measure even more painful.