Renewed confidence in the quality of policies and in the economic outlook could enable a further narrowing of the yield spread between Italian and German ten-year bonds, which is still close to double that of Spain and Portugal.
As the economy improves, an appropriate strategy to gradually rebalance the public accounts could strengthen these confidence effects and further accelerate the reduction in the debt-to-GDP ratio. The present difficulties must not prevent us from looking to the future. Certainly, there are risks in the near term. Yet by cultivating a longer-term vision, it is possible to do better than the trend projections suggest.