How inflation and interest rates might affect Italy’s budget

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.When interest rates are below growth rates, governments can run primary budget deficits (that is, deficits before interest payments are taken into account) without the debt-to- ratio necessarily rising. But when rates exceed economic growth, primary surpluses are the only way to keep indebtedness stable. The higher the starting debt, the more belt-tightening needed.