Debt rules the world. Global debt has exploded by over $60 trillion since the bottom of the global financial crisis in 2008. This outpaces the expansion in global GDP over the same period, which saw growth of about $30 trillion on an inflation-adjusted basis.
Within the universe of the debt discussion are debt by country. Perhaps the most fragile so-called advanced economy that investors should be concerned about is Italy.
Italian debt is massive. The debt is held across the world, although most is held by banks and households headquartered in the European Union (EU).
Figure 1 has a geographic look at the amount of Italian debt held by country. Debt holders in France are the “big winners” here, holding a massive €286 billion in Italian debt. In second place, and far behind the amount held by France, is Germany at €59 billion.
The remaining countries with debt above €10 billion are Belgium at €25 billion, Spain at €21 billion, Other banks at €17 billion, and the United Kingdom at €17
These amounts sum to about €430 billion. Massive.
A summary of the map is contained in the bar graph of Figure 2.
Italian Banks’ Exposure to Italian Government Debt
With the external exposure to Italian debt giving a concerning picture, let’s look at Italian banks’ exposure to Italian government debt. Figure 3 has such a view.
The picture isn’t pretty for UniCredit. The Italian bank has a €66 billion exposure to Italian government debt.
Not far behind UniCredit is Intesa Sanpaolo at €47 billion. The remaining members of the top 5 exposed Italian banks include Banca Monte dei Paschi di Siena at €25 billion, Banco BPM at €21 billion, and ICCREA Banca at €11 billion.
Other banks on the list include BPER Banca at €10 billion, Banca Popolare di Sondrio at €10 billion, Unione di Banche Italiane at €10 billion, Credito Emiliano at €3 billion, and Banca Carige at €2 billion.
Summing these ten banks’ exposure together amounts to €204 billion. That is no small sum of money.
If there is one conclusion from this looking at countries’ and banks’ exposure to Italian debt is that the problem is massive. Italy’s debt problems are not going away any time soon. Any hiccup in the Italian debt markets could potentially have ripple effects across the global debt markets.
We’re all interconnected in one way or another, and our interconnection with the Italian markets is a scary picture. If you’re looking for an issue that could trigger the next global recession, look no further than the massive amounts of debt countries have accumulated – Italy being chief among the imprudent.