Stephanie Flanders, Columnist

Italy’s New Leaders Need a Lesson on Debt

Tricks to make the load appear more stable won’t help with the interest costs.

May 17, 2018 at 7:57 PM UTC

Stephanie Flanders is Senior Executive Editor for Economics at Bloomberg and head of Bloomberg Economics. She was Chief Market Strategist for Europe at J P Morgan Asset Management in London (2013-17) and BBC Economics Editor (2008-13). She has also been Senior Advisor to US Treasury Secretary Lawrence H. Summers (1997-2001), editorial-writer for the Financial Times and an economist at the Institute for Fiscal Studies and London Business School.

The dog gets whatever it wants.
Photographer: Giulio Napolitano/Bloomberg

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In a move that doubtless prompted relief across Europe, Italy's populist about-to-be government made clear that it is not now looking for the European Central Bank to write down 250 billion euros ($295 billion) of Italian sovereign debt. At least that was the reassuring message to markets from the latest set of meetings between leaders of the Five Star Movement and the League. But the populists do, reportedly, want all of the sovereign bonds held by the central bank as part of the ECB's bond-buying program to be magicked away in official assessments of Italy's public debt.

This second proposal will sound less alarming to most observers. Alas, it suggests that the people who would like to run the next Italian government do not know the difference between a stock and a flow.