"The corona crisis is increasingly proving to be a severe test for the debt sustainability of the countries of the European Monetary Union," writes DZ Bank analyst Daniel Lenz in a study that is available to the Handelsblatt in advance.
The central institute of the cooperative banks assumes that debt in Italy will increase to 160 percent of economic output by the end of the year. The country is one of the countries most affected by the corona pandemic in Europe and
is trying to compensate for the economic consequences with billions. According to the DZ-Bank study, the country would have to generate a permanent budget surplus before interest payments of three percent of gross domestic product (GDP) after the crisis in
order to stabilize public debt at this high level. After all, the 750 billion euro reconstruction fund that has been struggling for weeks in Brussels is a ray of hope.
This is intended to direct transfer payments and aid loans financed by the EU to regions heavily affected by corona.
A decision could be reached next week at the EU summit. Italy can still rely on the European Central Bank to specifically buy government bonds from the country and thus keep financing costs within limits.
The central bank can use the pandemic purchase program called PEPP to buy up interest rate bonds from the euro countries without having to adhere to the rules that they have set themselves, such as the capital key.
The rating agency @FitchRatings also recently confirmed Italy's solid credit rating, a triple B rating. Investor demand for Italian government bonds is also high. However, the PEPP is initially limited until June 2021, the volume is set at a maximum of 1.35 trillion euros.
Christoph Rieger, chief strategist for bonds at Commerzbank, also expects the ECB to intervene more cautiously on the bond market in the summer months. According to calculations by DZ-Bank, this would further increase concerns about the sustainability of Italian debt.
If the primary balance and growth are high enough, a risk premium of two percentage points compared to seven-year federal bonds could drive debt levels above 180 percent of GDP.
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