Italy needs upward dynamism since its high-level debt still problem for economy

Italy's public debt dropped to 2.2036 trillion euros in June, down by 14.6 billion euros on the record high reached in May, the Bank of Italy said on Thursday. But economists believed that is not a reason to be optimistic because Italy's staggering debt mountain will likely become problematic unless the country's economy can start to grow.

The data issued by the Bank of Italy showed that the country's public debt reached an all-time high level of 2.2 trillion euros (2.4 trillion U.S. dollars) in May. The debt increased by 23.4 billion euros (25.7 billion) dollars in May alone, sparking criticism from opposition lawmakers and newspaper editorials.

The debt issue is attracting particular attention because nearby Greece is dramatically teetering on the edge of economic collapse at least in part because it allowed its debt levels to go unchecked for years.

But the real figure to watch, economists say, is debt as a percentage of the country's gross domestic product. That is also near an all-time high: Italy's debt is currently still at the level 133 percent of its GDP, only a little lower than during the first part of the year. That debt-to-GDP ratio is the second highest in the European Union, trailing only Greece. Local analysts hold that the number will drop in a hurry if economic growth kicks into gear.

"Looking at the debt in terms of euros is only part of the equation," Cesare Imbriani, a professor of political economics at La Sapienza University in Rome, said in an interview. "We have the numerator in a fraction, but the size of the economy is the denominator, and if the denominator is larger the problem is smaller.

"Look at the U.S. economy," the professor went on. "Its overall debt level is much larger than Italy's in dollar terms. But because the economy is so much larger the debt is much more manageable."

Guido Tabellini, an economist and the former rector of Milan's Bocconi University, agreed. "If Italy's economy would grow even one percent a year the debt would be less of a problem," Tabellini told Xinhua. "If it grew 2 percent or more, the debt would start to shrink" in GDP terms.

According to the International Monetary Fund, Italy's economy - which contracted 2.8 percent in 2012, 1.7 percent in 2013, and 0. 4 percent last year - is expected to grow 0.5 percent this year and grow a further 1.1 percent in 2016.

Both Imbriani and Tabellini said that if the government wants to limit the country's debt problem, its best strategy is to spark economic growth.

To that end, Italy has several factors working in its favor aside from estimates showing growth returning. Tabellini said that on average, Italy's debt matures in 6.5 years, a figure moving higher as the government sells more long-term debt and less debt with shorter maturities. That will make paying off maturing bonds easier.

Additionally, a weak euro compared to the U.S. dollar and other currencies continues to make Italian exports more attractive to foreign buyers, low fuel costs make manufacturing and transport cheaper, and Italian Prime Minister Matteo Renzi's ambitious reform agenda is lowering government costs in some areas and buoying investor confidence in the country, which in turn keeps borrowing costs low. Enditem