The report suggests that Italy could face a debt crisis within the euro area as financial conditions tighten. The move by the European Central Bank to raise interest rates and to purchase fewer bonds in the months ahead is central to this outlook. A survey of economists cited by the publication shows nine out of ten believe Italy is a eurozone member at risk of a disconnect between government bonds and the broader market. In the view of many, Italy remains the weakest link in the euro area.
The government led by Prime Minister Giorgia Meloni is attempting to shrink the budget deficit from 5.6% of GDP to 4.5% in 2023 and to 3% in 2024. Yet Italy’s public debt stands as one of the highest in Europe, exceeding 145% of GDP. That level of indebtedness heightens sensitivity to any downturn in bond markets and increases the country’s vulnerability to shifts in global rates.
Meloni has criticized the ECB’s strategy of continuing rate increases, arguing that the pace and magnitude of tightening could threaten growth and financial stability. He called for clearer and more effective communication from the central bank, warning that even without panic, abrupt fluctuations in markets could complicate government policy and delay reforms.
Other members of the Italian government echoed concerns about the intensity of monetary tightening. They expressed worries that aggressive policy normalization might undermine financial resilience and complicate the task of sustaining fiscal consolidation while supporting growth.
Separately, there was a note about energy supply expectations. A former statement attributed to Algeria indicated a willingness to increase gas deliveries to France if France explicitly requests more gas. At the same time, Italy signaled a desire for higher gas shipments, though it noted there was no current demand from France to raise imports. The situation underscores how energy security and market expectations intersect with fiscal and monetary policy during periods of financial tightening.