Italian family wealth — illiquid assets, mostly property, and financial instruments, held by the country’s households across all classes — has long been a pillar of economic strength in the heavily indebted nation. It is in focus again as the war in Ukraine, energy price shocks and inflation weaken the country’s outlook.
At 10 trillion euros (US$10.56 trillion), such wealth is one of the world’s largest stockpiles: It is 8.7 times greater than the country’s disposable income (that would be mostly cash), Bank of Italy data show.
Set against Italy’s sovereign debt of more than 150 percent of GDP, Italian families preside over veritable goldmines. What is more, despite the COVID-19 pandemic, household net worth is 5 percent higher than it was a decade ago, central bank data show.
That is reassuring at a volatile time, but do not expect affluence to provide a panacea for structural weaknesses. Two decades of stagnation have meant Italy’s strengths are not what they used to be.
The country’s borrowing costs are rising. Market pressure on the country’s sovereign debt widened the spread between Italy’s 10-year BTP and the German Bund toward levels that risked being unsustainable; that led the European Central Bank to call an emergency meeting to pledge the creation of an instrument to close yield gaps.
Seeking to assuage financial fears, politicians from the right to the left in Italy suggest that family wealth cancels out the danger of national indebtedness. That is not exactly right.
However, there could be ways to put some of that capital back to work into the economy.
Some kind of wealth tax is the most obvious method, partly because a lot of the largesse is the result of the country’s high rate of tax evasion.
“What Italians have saved in unpaid taxes was put into buying houses,” said Luigi Guiso, professor of household finance and insurance at the Einaudi Institute for Economics and Finance.
A tax of, say, 1 percent on house values and bank deposits might be a recourse if the state urgently needs more money. The current government is ideally placed to begin the baby steps toward a wealth tax: It is led by a technocrat economist — Mario Draghi — who is not seeking re-election as prime minister.
There are obstacles. For one, putting a price on assets to tax them is fraught with difficulty. Italian wealth is split fairly evenly between financial instruments — including Italian sovereign bonds and US Treasuries — and real estate, Bank of Italy data show.
However, property in Italy, which is often held in a family through generations, is notoriously difficult to value. Even Draghi has struggled with opposition within his coalition government to a reform of the land registry that would have made it easier to put a value on Italian real estate.
Politicians know that if a clear cut valuation for Italian assets becomes law, it is a small step to a wealth tax being brought into force — and polls show (surprise) voters universally hate the idea.
There are political ramifications. If the government pushes a levy through, it could well boost support for the far right Brothers of Italy party, led by Giorgia Meloni, which is the only major party in opposition to Draghi’s coalition.
A wealth tax could also hollow out the middle class, the main support of mainstream politicians. That is because the highest net-worth individuals have already moved their assets offshore, as evidenced by the popularity of Luxembourg or Monaco as domiciles of Italian family-owned enterprises.
Italian wealth is also illusory. Yes, it is higher than it was a decade ago, but it is actually on a downward trend over the past 15 years and more, a period in which Italian economic growth stagnated and productivity shriveled. Unless Italians start to save again, it is not going to grow.
Indeed, the long-term data trend suggests an ongoing household impoverishment. Italians would not be able to maintain their standard of living without liquidating more and more of their assets, said Alberto Albertini, vice chairman of Ersel, a private bank.
There are other pressures apart from inflation and soaring energy bills.
Corrado Passera, a veteran Italian banker who runs a fintech called Illimity that buys distressed debt, said that there are 280 billion euros in loans that have seen their credit risk increase since they were first issued.
It is fair to assume that most of that souring debt has been incurred by small and midsized family businesses — the backbone of the economy. The widening spreads threaten to make it more expensive for those loans to be refinanced. Of course, not all those struggling borrowers will fail to repay their debts, but some will.
That is all good for Passera’s business, but for most everyone else — Draghi and Italian families included — it is another looming crisis: a “doom loop” where the volatility in the sovereign debt spreads undermines the banking sector through its loan books.
Italy’s chronic failure to stem tax evasion, boost growth and productivity and lower its debt over decades has brought it to this crossroads. A wealth tax could have helped, but that time has passed. The economic crisis is now too big an issue for Italian families to handle. We have to hope they do not swerve far right for a solution.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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