Italy's public debt is based on domestic wealth and is more sustainable than that of other countries

According to the latest Eurostat data, in 2023 Italy's non-financial private sector invested the most in its country's public debt in a European comparison. In fact, households and non-financial companies have increased the amount of Italian public debt they hold by EUR 119 billion over 2022, bringing it to a total of EUR 383 billion, or 13.4% of total debt (it was 9.6% in 2022). In second place for the increase in public debt acquired by the domestic private sector in 2023 is Spain (+27 billion over 2022), followed by Belgium (+23 billion) and Portugal (+9 billion).

The public debt held by Italian households increased last year by 106 billion (+114 billion government bonds), that held by our non-financial companies by 13 billion (+11.5 billion government bonds). Figures that reflect, on the one hand, the interest of private individuals in the high yields of our government bonds, but also, on the other hand, the considerable domestic financing capacity of Italy's sovereign debt, based on the large net financial wealth of households, which more than compensated for the simultaneous reduction in the debt held by the Bank of Italy and the banks. Indeed, it cannot be taken for granted that a country has adequate private domestic resources to back its public debt, as happened, for example, to Greece in 2008-2012, the amount of which was almost entirely in foreign hands. By contrast, Italy's public debt is now only 27.6 per cent of the total in foreign hands, the lowest value in the Eurozone after that of tiny Malta (21.8 per cent), while the highest shares are in Cyprus (95.7 per cent), the Baltic States and Austria (with shares ranging from over 60 per cent to just under 80 per cent).

In contrast to Italy, in 2023, the increase in French public debt, +148 billion, was more than financed by non-resident investors (+165 billion), as was the case for German public debt, +61 billion, with a substantial increase in the amount held abroad (+145 billion), against a reduction in the amount held by the Bundesbank and financial companies (-99 billion). France now depends 50.5% on non-resident investors to finance its public debt; Germany 45.2%. In Italy, after a low reached in January 2023, foreign investors returned to buying our debt, driven by the advantageous yields, but the growth in absolute value of purchases of public bonds by the Italian non-financial sector was practically double that of foreigners until the end of February 2024. Thus, the weight of non-resident investors in Italian government debt rose only marginally from 26.7% in 2022 to 27.6% in 2023.

These figures give pause for thought, especially after the European elections that caused a serious political crisis in France and a surge in the spread of French government bonds. We are entering an era of instability in which having a high foreign public debt no longer automatically equates, as in the past, to a blank cheque of market confidence in a given country. In fact, if one does not have one's accounts in order, and perhaps domestic political turmoil is also triggered in the meantime, too much foreign debt risks turning into a major factor of imbalance for the country itself.

The numbers speak for themselves. In 2023, according to Eurostat, the highest public debt in Europe in foreign hands was that of France (1,567 billion), followed by Germany (1,186 billion), Italy (789 billion) and Spain (670 billion). A drop in confidence in France could be devastating for French finances. France's public debt is already the highest in Europe in absolute terms (3,101 billion in 2023, i.e. 238 billion higher than Italy's). It is difficult to see who would buy French government bonds in the event of a flight from foreign investors, albeit a limited one. Indeed, despite the recent rate hikes after the government crisis, French government bonds remain unattractive to the French themselves. As they always have been, being so close in remuneration to German Bunds.