We live in the age of debt. In the 1970s, 1980s, 1990s, 2000s, and 2010s (so far), debt has continually grown. Over just the past ten years, global debt has ballooned another $60 trillion. The growth is massive. We are now in the age when economic growth isn’t enough to keep issuing ever more debt. Over the same period that global debt expanded by $60 trillion, global GDP only expanded by $30 trillion on an inflation-adjusted basis. So is the age of debt.
Within the debt discussion universe, one “small” area of research is the interconnection of debt. And within this group is one country that’s in deep trouble – Italy.
The Italians haven’t been shy about issuing debt. Their debt is held across the world, although most of it is held by households, businesses, and banks headquartered in the European Union (EU).
Figure 1 has a geographic look at the massive amounts of Italian debt held according to country. More than half of the Italian debt is held by France at €286 billion. Next in line in the debt universe is Germany. The Germans have purchase an incredible €59 billion in debt. Nowhere near the mistakes the French made, but still up there is amount.
The remaining countries with debt above €10 billion are Belgium at €25 billion, Spain at €21 billion, Other banks at €17 billion, and the United Kingdom at €17.
Overall, summing all the amounts these holders of Italian debt hold sums to €430 billion. Purely astonishing by any measure.
A summary of the map is give in the bar graph of Figure 2.
What about Banks in Italy? What Does Their Exposure Look Like?
Having just addressed the external exposure countries have to Italian debt, how do Italian banks look in their holdings of official Italian government debt? Figure 3 has such a look.
Figure 3 doesn’t paint a beautiful picture for Italian banks – that is unless you love misery. The leader in holdings of Italian government debt is UniCredit. The Italian bank has a €66 billion exposure to Italian government debt.
In second place is Intesa Sanpaolo at €47 billion. The other banks on the top five holding list include Banca Monte dei Paschi di Siena at €25 billion, Banco BPM at €21 billion, and ICCREA Banca at €11 billion.
The remaining non-top 5 members of the Italian government debt ownership are BPER Banca at €10 billion, Banca Popolare di Sondrio at €10 billion, Unione di Banche Italiane at €10 billion, Credito Emiliano at €3 billion, and Banca Carige at €2 billion.
Overall, the total amount of Italian government debt held by these ten banks amounts to €204 billion. Almost astonishing how Italian banks let the Italian government issue so much debt.
All in all, perhaps the most important conclusion from this discussion is that the Italy problem is massive. The Italian government has not been shy about issuing debt. Even more readily transparent is that Italy’s debt problems are not going away any time soon. Even more of a concern is that any tremor in the Italian debt markets could potentially have ripple effects across the global debt markets.
In the world of finance, we’re more interconnected than ever. Our connections to Italy should make individuals across Europe, the U.S., and Asia nervous.
One potential effect of a hiccup in the Italian debt markets could be a cause for the next global recession. Should such a trigger happen, no doubt there would be financial blood in the street.