By Giuseppe Fonte
ROME, Sept 18 (Reuters) – The cost of servicing Italy’s public debt is rising at “an alarming rate” in the wake of geopolitical tensions, Economy Minister Giancarlo Giorgetti said on Friday, as the government prepares to update its budget plans for 2027 onwards.
Inflation is bound to rise “ineluctably” if the wars in Ukraine and the Middle East continue, Giorgetti told a conference in Portofino.
“I sent a message regarding interest rates, or rather, regarding the debt burden, which has begun to rise at an alarming rate,” Giorgetti said, speaking via video link from the sidelines of a meeting of European finance ministers in Dublin.
Italian borrowing costs leapt at an auction last week. The 3-year BTP bond yield hit its highest level since June 2024 at 3.43% and a 7-year BTP bond fetched a 3.98% gross yield, the highest since November 2023.
Under its most recent budget plan, Italy sees its public debt peaking at almost 139% of GDP this year, replacing Greece as the euro zone’s most indebted country.
Giorgetti said rate hikes adopted by central banks across Europe and the United States were not likely to stem a rise in consumer prices.
“Inflation stems from a supply shock, not from an overheated economy and demand that must be cooled by a restrictive monetary policy,” he said.
To safeguard families’ purchasing power, the government said this week it would scrap road tax for 14.5 million cars and motorcycles from next year at a cost of €2.4 billion ($2.75 billion), on top of €2.8 billion already set aside this year to fund temporary excise duty cuts.
Italy also plans to make full use of the extra deficit slack granted under Brussels’ National Escape Clause from the bloc’s budget rules to soften energy costs. The leeway is worth 0.6% of GDP or around €14 billion through 2028.
“I believe the European Commission will be open to granting us this budget leeway,” Giorgetti said.
Before invoking that clause, Giorgetti reiterated he was still hoping for a downward revision next week of Italy’s 2025 deficit to below the EU ceiling of 3% of GDP. This would give Rome some hope of an early exit from a European Union disciplinary procedure.
The national and European statistics offices ISTAT and Eurostat will publish revised 2025 deficit data on September 22.
($1 = 0.8721 euros)
(Additional reporting by Sara Rossi in Milan; editing by Alvise Armellini and Kevin Liffey)
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