The recent rise in Italy’s borrowing costs reveals investors are preparing for a mixture of weak growth and high debt, according to the Bank of Italy’s outgoing governor, Ignazio Visco.

Whilst speaking to the Financial Times, Visco stated: “Obviously, you need to understand why markets may be worried. I don’t think it is speculation against the country. It is basically a concern about the long-term potential growth rate of the economy.”

As it stands, investors are offloading Italian debt as concerns mount over the spending plans of Prime Minister Giorgia Meloni coupled with slow growth.

This has increased the country’s risk premium to levels that have concerned European Central Bank policymakers in the past. 

Within Italy’s final budget plan, the Italian government has targeted a wider budget deficit than previously established for 2023 and 2024.

In addition, the country’s 10-year yield premium compared to its German counterpart increased to a nine-month high at the end of last week. This spread exceeded 200 basis points, considered a closely monitored level by investors, Bloomberg reports.

The central bank governor, Visco, who is set to be replaced by the European Central Bank’s Fabio Panetta after being in the position for 12 years, urged the prime minister to acknowledge that international visitors are concerned over rising interest rates, global trading system tensions, elevated energy costs and the country’s rapidly ageing population, the Financial Times report goes on to say.

“This is why you have to respond to the markets with two things: First, a view of the longer-term plan for growth, and second, the action on the short and medium term as far as the fiscal imbalances are concerned,” Visco said during the interview.