Why is the Italian government trying to push its budget, which would make their national debt skyrocket even further, while the Italian Audit Office says it's a bad idea and the EU isn't too keen on it either?
The usual reason:
- The spending priorities of the government coalition follows their political program, and they are not willing to limit their spending just because income projections are falling short.
- Almost everybody agrees that some government debt is necessary. Government bonds play an important role on the market as a safe, benchmark investment. You can put all your money in hedge funds, or you put some part in government bonds. Especially as you go near retirement, the latter is a very good idea.
If some debt is good, will a little more hurt?
- If the deficit gets too high and the government simply prints money to get out of debt, you get inflation.
Again, some inflation is necessary. Negative inflation (deflation) does bad things to the economy, and if inflation is too close to zero some random factors might get you into deflation. Better have 1 or 2 percent inflation than risk -1%.
And again, if some inflation is good, will a little more really hurt?
The problem is the slippery slope between 20% and 120% debt-to-GDP, and between 2% and 200% inflation. It is always just a little more won't hurt ...