Add the consideration that in the event of default the inefficiency of Italian civil justice sometimes makes it uneconomic even to initiate a credit recovery action, so that banks will write off virtually the entire amount of a small non-performing loan, even if the expected loss, measured objectively, is limited. This practice impacts on banks’ lending decisions and the interest rates they charge.
So accepting a rise in trend inflation because of the short term moderation in demand growth needed to contain a pick up in prices would be a very short sighted policy.