Italy will have Europe’s biggest debt pile in just three years، according to Scope Ratings، which called for a plan to get its public finances in order.

The country’s borrowings as a proportion of gross domestic product are set to exceed those of Greece within that time، the company said in a report on Friday. That’s quicker than projected by the International Monetary Fund، which forecasts such a result in 2028. 

The prospect that Italy’s public-finance profile is rapidly shaping up to stand out from its peers adds pressure on premier Giorgia Meloni’s coalition to take remedial action. The debt ratio did fall significantly more than predicted last year to 137.3%، but that boon is now reversing — a trajectory acknowledged in official forecasts.

Stabilizing public debt

“Italy’s government needs to devise and implement a credible، medium-term fiscal consolidation plan to stabilize public debt given the challenges of high interest costs، excessive past tax incentives، and delays in growth-enhancing recovery plan spending،” wrote Eiko Sievert، an analyst at Scope.

He reckons the country needs cumulative savings of €135 billion ($146 billion) over the next five years for its primary balance — the measure that matches revenue against spending، before interest costs. That calculation assumes average annual growth of 1% and inflation at 2%.

“Enhancing the efficiency and quality of public spending، reinforcing the sustainability of the pension system، and improving tax compliance will be critical،” Sievert said.

Investors have given Meloni the benefit of the doubt، with the spread of Italian bonds over German equivalents — a key gauge of risk in the region — having fallen earlier in 2024 to a two-year low. 

Earlier this week، former Italian Finance Minister Pier Carlo Padoan was asked to explain the benign backdrop in markets. Speaking during a discussion hosted by the Washington-based American Enterprise Institute، he speculated that it’s “mostly politics.”

“One thing must be recognized: that the current government، which is a center-right government، is very solid،” he said. “Political stability is something which Italy has not enjoyed all the time.”

During the same event، Charles Dallara، a former head of the Institute of International Finance and a veteran negotiator of the region’s sovereign crisis، reckoned that such market conditions can’t last forever.

“I do think that it’s rather foolhardy for countries to think that they can continue to run sizable fiscal deficits and accumulate sizable debt-to-GDP without there being eventual consequences،” he said.