Policy Article

The Italian mountain of debt – causes and conclusions (original publication in German)

Kiel Policy Briefs, 45

Italian public debt has gained a lot of attention in recent years. The authors show that the causes of the high debt level are mainly rooted in the economic policies between the 60s and 80s. Fiscal policy after the introduction of the euro plays a minor role. The struggle for credibility that the Italian monetary policy fought in the 80s and 90s contributed to the debt dynamics by implementing high real interest rates. The Italian example shows that inflation may not an easy way out since a loss in credibility of the central bank can affect negatively public finance in the long run.

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