Italy’s families ain’t rich enough to evade a crisis

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’s in focus again as the war in Ukraine, energy price shocks and inflation weaken the country’s outlook. At 10 trillion euros ($10.55 trillion), such wealth is one of the world’s largest stockpiles: 8.7 times greater than the country’s disposable income (that would be mostly cash), according to the Bank of Italy. Set against Italy’s sovereign debt of more than 150% of gross domestic product, Italian families preside over veritable goldmines. What’s more, despite the pandemic, household net worth is some 5% higher than it was a decade ago, according to the central bank. That’s reassuring at a volatile time. But don’t expect affluence to provide a panacea for structural weaknesses. Two decades of stagnation have meant Italy’s strengths aren’t what they used to be.
Right now, 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 per se cancels out the danger of national indebtedness. That’s 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,” says Luigi Guiso, professor of household finance and insurance at the Einaudi Institute of Economics and Finance. A tax of, say, 1% on house values and bank deposits may be a recourse if the state urgently needs more money. And the current government is ideally placed to begin the baby steps toward a wealth tax: It’s led by a technocrat economist — Mario Draghi — who is not seeking reelection.
But there are obstacles. For one, putting a price on assets in order 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, according to Bank of Italy data.
But 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.

—Bloomberg