Italy's political risks cloud debt reduction hopes ahead of election
TLT•Analysts warn that next year's election and the end of EU recovery-fund payments could put Italy's debt-reduction plans at risk. Italy's 10-year bond yield reached 4.7% this month, while the yield spread over German Bunds widened to about 105 basis points.
1. Bond risks increase
Italy's €3-trillion government bond market faces renewed scrutiny as political uncertainty grows and EU recovery-fund support fades. Analysts expect risk premia to rise ahead of next year's election, while the yield on 10-year Italian bonds reached 4.7% this month and the spread over German Bunds widened to its broadest in almost 18 months.
2. Debt and deficit outlook
Italy's debt-to-GDP ratio climbed to 136.7% in 2025 and is expected to keep rising at least through 2028, Goldman Sachs economist Filippo Taddei said. Interest spending exceeded €100 billion last year; the government aims to lower this year's deficit to 2.9% of GDP, before it rises above 3% in the following two years.
3. Growth and reforms
The government raised its 2026 growth forecast to 1% from 0.6%, with EU recovery funds supporting investment. Those payments are due to end by December. TS Lombard's Davide Oneglia said Italy needs structural reforms, while Moody's warned that slower growth, weaker fiscal discipline or reduced reform momentum could put the projected debt-reduction path at risk.
