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Sovereign Debt Sustainability in Italy and Spain: A Probabilistic Approach

Author

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  • William R. Cline

    (Peterson Institute for International Economics)

Abstract

This paper introduces a new probabilistic approach to sovereign debt projections and presents new estimates of debt ratios through 2020 for Italy and Spain. The new approach takes account of likely correlations across 243 alternative scenarios with three states (good, baseline, bad) for five key variables (growth, interest rate, primary surplus, bank recapitalization, and privatization). The 25th and 75th percentile scenarios are reported, as are the baseline and probability-weighted outcomes. The results suggest sovereign debt is sustainable in both Italy (where debt ratios are likely to decline because of a high primary surplus) and Spain (where the ratios rise but at a decelerating pace and from relatively low levels).

Suggested Citation

  • William R. Cline, 2012. "Sovereign Debt Sustainability in Italy and Spain: A Probabilistic Approach," Working Paper Series WP12-12, Peterson Institute for International Economics.
    • Handle: RePEc:iie:wpaper:wp12-12
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    File URL: https://www.piie.com/publications/working-papers/sovereign-debt-sustainability-italy-and-spain-probabilistic-approach
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    References listed on IDEAS

    as
    1. William R. Cline, 2011. "Sustainability of Greek Public Debt," Policy Briefs PB11-15, Peterson Institute for International Economics.
    2. William R. Cline & Guntram B. Wolff, 2012. "Resolving the European Debt Crisis," Peterson Institute Press: All Books, Peterson Institute for International Economics, number sr21, October.
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    Cited by:

    1. William R. Cline, 2013. "Debt Restructuring and Economic Prospects in Greece," Policy Briefs PB13-3, Peterson Institute for International Economics.
    2. William R. Cline, 2014. "Sustainability of Public Debt in the United States and Japan," Working Paper Series WP14-9, Peterson Institute for International Economics.
    3. Edwin M. Truman, 2013. "Asian and European Financial Crises Compared," Working Paper Series WP13-9, Peterson Institute for International Economics.
    4. Tielens, J. & van Aarle, B. & Van Hove, J., 2014. "Effects of Eurobonds: A stochastic sovereign debt sustainability analysis for Portugal, Ireland and Greece," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 156-173.
    5. William R. Cline, 2015. "From Populist Destabilization to Reform and Possible Debt Relief in Greece," Policy Briefs PB15-12, Peterson Institute for International Economics.

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    More about this item

    Keywords

    sovereign debt; Italy; Spain; euro area crisis;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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