Yet it is difficult to imagine that a reduction in household wealth, greater difficulties for firms in accessing credit and investing, and a reduced capacity for public sector intervention would not have significant consequences on economic activity.
Italy’s public debt is sustainable, but there must be a clear determination to keep it so, by putting the debt-to-GDP ratio on a credible path towards lasting reduction. Any uncertainty about Italy’s committed participation in the European Union and in the single currency must be dispelled, as it fuels volatility in the financial markets.