(Bloomberg) -- Italy is living on the edge, the European Commission warned on Wednesday.
Risks to its ability to refinance its mountain of debt in the medium to long term are “high,” the EU's executive arm said in a report. Even in the short term, Italy is exposed to market swings, according to an assessment of macroeconomic imbalances across the bloc's members.
The warnings are not new, and Rome has traditionally resisted instructions from Brussels to rein in its budget deficit. But it's now at risk of a recession as the spread of the deadly coronavirus clouds an outlook that was already far from positive.
“As a large exporter, Italy is particularly exposed to the global economy,” the commission said. “The large size of Italy's public debt makes investors very sensitive to perceived risks.”
Italy's debt ratio is close to 140% of GDP, the highest in the euro area after Greece.
The country's borrowing costs remain low relative to historic levels, though bonds have fallen in recent days after the viral outbreak forced a shutdown in the country's industrial heartland. The yield on 10-year bonds rose on Wednesday to 1.017%, taking its increase this week to more than 10 basis points.
“The need to roll over sizable amounts of debt, at around 20% of GDP per year, still exposes Italy's public finances to sudden rises in financial markets' risk aversion,” the commission said. “High debt-servicing costs also reduce the fiscal space to implement growth-enhancing and countercyclical policies.”
To contact the reporters on this story: Nikos Chrysoloras in Brussels at nchrysoloras@bloomberg.net;Viktoria Dendrinou in Brussels at vdendrinou@bloomberg.net
To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Fergal O'Brien, Jana Randow
©2020 Bloomberg L.P.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
