Yet this approach resembles seeing the speck in someone else’s eye while overlooking the log in one’s own. Debating a few billion more or less to be spent risks obscuring the far more significant change that has taken place in the international macroeconomic landscape. With public debt standing at 137 per cent of GDP, Italy’s budgetary constraints are now much tighter, not so much because of pressure from Brussels but because market conditions have changed profoundly.
For over a decade, we have become accustomed to very low inflation, interest rates close to zero and central banks acting as major buyers of government bonds. Under those conditions, even high levels of debt seemed relatively easy to manage. Today, this is no longer the case. Inflation has not yet returned to target on a stable basis in many countries; interest rates are higher; central banks are reducing their bond portfolios; and the major investment cycle linked to artificial intelligence is competing with governments for available savings. At the same time, the gross public debt of advanced economies has risen to nearly 110 per cent of GDP, compared with around 70 per cent in the early 2000s. In September, the median yield on 10-year government bonds in advanced economies exceeded 4 per cent, around five times the average for 2015–21. Higher debt levels are now meeting higher interest rates. And the long end of the yield curve has become more volatile.
For Italy, this matters a great deal. Debt stood at 137.1 per cent at the end of 2025, and the European Commission forecasts it will rise to 139.2 per cent in 2027. The higher cost of borrowing is not immediately passed on to the entire debt stock, as the average remaining maturity of the debt is long – around 7.9 years. However, nearly 600 billion, about a fifth of the total, has a residual maturity of less than one year and will therefore have to be refinanced at prevailing market rates. Interest expenditure stands at 3.9 per cent of GDP in 2025, the second highest in the G7 after that of the United States.
The Economist reports that if all the debt were to be refinanced today at current five-year yields, the UK would need a primary surplus of 1.5 per cent of GDP just to stabilise its debt-to-GDP ratio. Italy would follow closely behind, at 1.4 per cent, ahead of France (1.2 per cent) and the United States (1 per cent). It is a purely hypothetical scenario, but it clearly illustrates how much the arithmetic of debt has changed compared with the years of zero interest rates. Yet we often continue to talk about the fiscal constraint as if it were primarily a European rule. The 3 per cent figure is a rule. A debt-to-GDP ratio of 137 per cent and the rate at which investors are willing to refinance it are economic constraints in their own right.
Reducing a debt of this magnitude is neither simple nor quick. It takes years, a credible strategy and, above all, economic growth. The solution cannot be to seek growth through yet another permanent expansion of debt-financed public spending. That would amount to trying to solve the debt problem by taking on more debt. In 2025, public sector spending stood at around 51 per cent of GDP, compared with around 47 per cent twenty years ago. So much for the much-vaunted austerity. The decisive factor is potential growth: productivity, private investment, human capital, competition, the size of businesses and the functioning of institutions. As we often repeat in these columns, genuine supply-side policies are needed – policies that increase the country’s capacity to produce without having to continually prop up demand with new deficits.
This is also why the issue should feature in the upcoming election campaign. As always, promises of new spending or tax cuts are beginning to emerge, whilst the funding arrangements tend to be far less visible. Alongside the tables listing what is promised to be distributed, it would be useful to publish another: debt-to-GDP ratio, primary balance and projected growth for the next five years, together with the measures intended to achieve it.
It is a much less popular table than the one showing bonuses. But, ultimately, it is the one that needs to be included.