Expected Effects of the COVID-19 Epidemic on the Medium- and Long-term Financing of Italy's Public Debt

Abstract

The socio-economic consequences of the coronavirus epidemic are a topic of most public interest today. Of course, the public of the society and the economic profession is most interested in the expected negative economic effects. Among the consequences, special attention is paid to the growth of the gross debt of the states and their financial financing. In this context, Italy stands out among the Member States of the European Union. The privileged role of the Italians is explained by the fact that, both in absolute terms and in terms of debt, this country's public debt will increase the most among the countries of the Union. The study uses an econometric model to show the expected increase in Italian public debt. This increase is quantified by the study based on four epidemic scenarios. The research concludes that in whatever way the coronavirus epidemic will end, financing Italy’s drastically rising public debt will require a huge effort. Nevertheless, it cannot be ruled out that Italy will have to resort to the possibility of an orderly state bankruptcy within a few years.