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Bank of Italy released the government debt statistics for June. As always a few entries are not quite up to date but they still allow for some important conclusions.

Table 5 includes monthly statistics by holding sector. ‘Resident MFIs’ increased their holdings during 2012 from €515,58bn in December 2011 to €607,69bn in May (+€92.11bn), ‘Other Resident Financial Institutions’ from €291,48bn to €315.21bn (+€23.73bn) and ‘Other Residents’ from €261.87bn to €333.91bn in April (+€72.04bn). It is clear that resident MFIs and other residents were the main drivers of the increase in resident holdings of Italian government debt. On the other hand, ‘Non Residents’ decreased their holdings from €739.51bn to €619.34bn in April (-€120.17bn or 16% of their holdings). In December 2011 residents held 61% of total government debt while in April the percentage increased to 68%, a change of more than 6% in 4 months time.

Overall, government debt increased by €75.06bn during the first half of 2012, compared with €58.76bn in the first half of 2011 and €55.74bn for the whole of 2011, an increase of more than 4.75% of GDP from 120.1% to 124.9% GDP. Given the fact that Italy is already in a deep recession (with quarterly GDP dropping 0.7-0.8% in 2012Q1 and Q2) government debt is on a path to quickly reach 130% of GDP (although around 6% will be held by Bank of Italy).

Based on OECD data, if this pattern of a loss of 0.7% of GDP quarterly continues, Italy will be back to 2001 GDP levels by the end of 2012 and pre-Euro in the mid-2013.

Bank of Italy released its latest government debt statistics. Government debt holdings by sector are included on page 11. Stock numbers for June 2011 onwards are presented in the following table:

* Data refer only to securities (millions of €)

Its is quite evident that both Bank of Italy and domestic MFIs increased their holdings substantialy during 2011. Bank of Italy posted an additional increase of €10.8bn during the first two months of 2012 and domestic MFIs used LTRO funding substantialy by acquiring another €24.3bn of securities in January. Other residents did not change their holdings much, although there were some marginal swings up and down after August. On the other hand, foreigners were strong sellers of government debt securities, reducing their portfolio by more than €94bn during 2011 (unfortunately no data is available for 2012).

The following graphs depict changes more clearly, especially of the different paths for MFIs and other domestic financial institutions:


It seems that only the central bank and domestic banks support their government’s debt, with foreigners being very strongly risk averse and lowering their holdings by more than 10% in 6 months.

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Kostas Kalevras

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