Finance & economics | Whenever it breaks

How inflation and interest rates might affect Italy’s budget

Tighter monetary policy could make Italy’s debts harder to pay

Mario Draghi, Italy's prime minister, listens during a debate at the Senate in Rome, Italy, on Tuesday, June 21, 2022. Italys biggest party is set to splinter over the countrys support for Ukraine, just as Draghi defended in parliament his governments stance on the conflict. Photographer: Alessia Pierdomenico/Bloomberg via Getty Images

Jun 23rd 2022

Before the pandemic it was a cause for excitement among economists that the real interest rate governments paid on their debts had fallen below the rate of economic growth in most rich countries, allowing governments to spend more freely and worry less about running up debts. But central banks’ battle with inflation today threatens to turn that relationship on its head, making the fiscal position of indebted governments more perilous.

This article appeared in the Finance & economics section of the print edition under the headline “Whenever it breaks”