Photo: Wikimedia Commons
Italy is a strange case when it comes to debt.It has a lot of it — high debt-to-GDP — but in a sense it’s a bastion of fiscal responsibility.
For example, its deficits are improving.
Italy’s budget deficit in the third quarter of 2011 narrowed to 2.7% of gross domestic product from 3.5% of GDP in the same period a year earlier, national statistics institute Istat reported Wednesday.
Italy ran a primary budget surplus—net of interest costs on the public debt—of 1.7% of GDP, Istat said.
Overall public spending declined 0.4% in the third quarter from the same period of 2010, while overall tax receipts rose by 1.4%, Istat said.
There aren’t many countries sporting fiscal numbers like these right now.
This feeds into that trade recommendation from Goldman Sachs, which was to buy Italian bonds, and short French bonds on the basis that the spread was near all-time highs, but that the French fiscal situation really wasn’t all that better. That being said, it seems Italy is paying the price for its demographics, and long-term entitlement schemes, or even perhaps its perceived political problems, more than it is its short-term financial issues.