In an ideal world, Italy would follow the EU’s fiscal rules

 

As the fear that interest rates could stay higher for longer sinks in, government-bond yields across the rich world are rising.

In an ideal world, Italy would follow the eu’s fiscal rules, designed to ensure that its public finances stay out of danger. Alas, this will be hard to pull off. 

For a start, the rules are not realistic. To expect Italy to hit a debt-to-gdp target of 60% over a set number of years, as they do, is ridiculous. 

Although the European Commission hopes to overhaul those rules, hawkish northern countries are loth to give much ground

 The role of the central bank ECB is far clearer than it was during the depths of the euro zone’s debt meltdown. 

Should spreads on government debt start to spiral out of control, the ECB has committed itself to buying that debt.

In July last year the bank also said it would seek to aid the smooth transmission of monetary policy, by buying a country’s debt if spreads rise by more than it deems to be warranted by economic fundamentals.

The Economist 4 October 2023

https://www.economist.com/leaders/2023/10/04/rising-bond-yields-are-exposing-fiscal-fantasy-in-europe

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