High Public Debt in the Euro Area: A Tale of Belgium and Italy

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Series Details Volume 58, Number 3, Pages 672-687
Publication Date May 2020
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When they joined the euro in 1999 Belgium and Italy were almost identical in two respects: both had public debts equal to 110 per cent of GDP and the same GDP per capita. Today the situation in the two countries is very different. This article looks at the evolution of public debt in Belgium and Italy since 1990 and uses the debt dynamics equation to explain the contrasting evolution in the two countries in the run‐up to the introduction of the euro, during the early years of the euro and since the beginning of the crisis.

It argues that Italy's current predicament was not caused by the euro, as some have suggested. Instead, as the experience of Belgium suggests, the euro could have been used also by Italy to make a sufficiently large fiscal adjustment prior to the crisis to avoid the harsh adjustment that the crisis eventually imposed on the country.

Source Link https://doi.org/10.1111/jcms.12950
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