Can the Meloni debt strategy work?

The announcement of another BTP Valore issue at the end of February confirmed Meloni's strategy on public debt: attracting more and more Italian investors and putting significant portions of state debt in their pockets.
The policy of the Government in office is so clear that foreign experts and analysts are now also talking about it with interest, having always been curious about Italian moves to finance a debt that still remains among the highest – and therefore most vulnerable to risks – in Europe.
The reflection proposed by Bloomberg in this regard leaves no room for doubt: "With the country enjoying a rare respite on the financial markets just as it sells the largest number of bonds in its history, the prime minister and his government are increasingly relying on consumers”, suggested the journalists Alessandra Migliaccio and Alice Gledhill.
The numbers from Fabi (Federation of Self-employed Bankers) also strengthen the thesis: in about two years the share of debt held by small savers (BOTs and BTPs) has more than doubled.
While bond issues are growing, analysts are wondering whether this debt strategy of the Meloni Government is really effective.
The Meloni debt plan focuses entirely on Italian savers The Meloni Government's pillar to promote the sustainability of public finances seems to be to convince normal savers to purchase debt.
It is no coincidence that, as observed by Bloomberg, Italy's issues for retail investors (the so-called retail market to which the next BTP will also be exclusively addressed.
Expected value for 26 February) dwarf those of other European countries.
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Furthermore, all expectations point to a still robust national demand for the coming months.
Giorgia Meloni appears to be benefiting from an overall favorable environment, with the yield spread between her bonds and their German equivalents, a key measure of eurozone risk, just hitting a two-year low.
However, the analysis reminds us that Italian vulnerability is greater than its peers, with a debt/GDP stuck at around 140%, the highest ratio in the region after Greece.
read also Btp Valore, is it worth buying? Yield, between coupon and loyalty bonus “An enormous public debt and an anemic growth outlook make Italy highly vulnerable to sovereign risks,” said Simona Delle Chiaie, economist at Bloomberg Economics.
The ECB also estimates that around a fifth of the nation's bonds will mature and need to be replaced over a year, a significantly higher percentage than other large borrowers such as France.
As in many other states, Italy's public finance needs are also not seen to be decreasing: from financing the climate transition to renewing defense spending and increasing the pension account at a time of demographic change, the accounts are under pressure.
Italy, therefore, plans to sell up to 360 billion euros of medium and long-term bonds in 2024, the most of any country in the euro area.
Meanwhile, interest payments as a share of GDP have increased 35% over the past five years and will grow another 27%, according to Bloomberg economists.
By 2027, the overall cost could exceed the 5% of GDP level reached in 2012, at the height of the European debt crisis, in a scenario that assumes a favorable environment for borrowing.
Pushing the accelerator with the offering of national bonds is a strategy that Meloni does not want to waste, even while evaluating limits and critical points.
Finance Minister Giancarlo Giorgetti said he was more than happy to have a greater percentage of debt in national hands, because Italian savers generally represent a more stable base of investors, less inclined to dump bonds at the first hint of tension.
It should also be considered, as a positive factor for Italy, that European Union funds are likely to support growth in the coming year, according to the European Commission – a prospect that could support the country's precarious fiscal position.
However, according to Bloomberg analysis, Meloni appears to be running out of options.
“Even though your Government is selling stakes in public companies and generally reorganizing public assets to raise money, the process is proving to be a long one.
The attempt to get money by taxing banks' extra profits has effectively failed.
So the Prime Minister has no choice but to rely on the people – and not just for political support and tax money.
He needs voters to literally invest in his policies,” the analysis suggested.
The push of BTPs for individual savers only inevitably also has a meaning of political propaganda.
read also Btp, debt in the hands of foreign funds.
Giorgetti's plan to prevent Italy from going bankrupt Are the Bot People returning to Italy? The shift towards retail investors is not just an Italian phenomenon, but a European one, with holdings of government debt among residents also increasing in Spain and Portugal.
For many countries, Japan represents a recent pioneering example of the benefits of selling to citizens.
From 2003 to 2008, families almost tripled their availability in terms of money invested in government bonds, a policy that helped the country keep yields low despite the gigantic debt that is close to 250% of GDP.
The Meloni government's approach dates back to the 1980s and 1990s, when short-term bonds known as Treasury Bills became so popular that savers who bought them were called “BOT people” – a now familiar expression.
According to analysts, there is still a long way to go to reach those levels of debt in Italian hands.
To guarantee a constant flow of new loyal savers, today Valore BTPs even pay extra to holders who hold them until maturity.
The high returns compared to bank savings accounts – and the poor returns of previous years with ultra-low rates – are undoubtedly the main attraction.
In July they helped the Government raise more than 18 billion euros, a record amount for such a sale.
As noted by Fabi, in October, with a debt of 2,867 billion euros, families owned 13.5% of BOTs and BTPs, for a value of 322 billion out of the total 2,389 billion in state issues.
read also Italy, public debt at risk from mid-2024.
The analysis According to Bankitalia data, attracted by rates that beat those on bank savings, Italian savers paid 120 billion euros (130 billion dollars) in bonds in the first 10 months of last year.
With ECB interest rates still high – with cuts coming but not imminent – Italian debt is likely to continue to attract families seeking shelter from inflation.
The Meloni Government may rejoice, but the unknowns about the long-term effects remain.