No, the primary surplus is before interest payments. After interest payments it runs a deficit, so it is still borrowing to pay the interest bill, so debt is increasing.
That's true in absolute numbers. But if a country is able to run a primary surplus over the long run, it means that the growth of its economy and its tax revenues is keeping up with the additional nominal debt. So the debt grows in absolute numbers but not relative to GDP. That's why the primary balance is generally considered a good measure for debt sustainability.
Still, you are right that they may not be reducing debt, but at least they are keeping it stable.
Yes, real GDP growth has been anemic, but as most of the interest they pay is not inflation adjusted, you need to use nominal GDP - I think.
Anyway, I think Italy does have a great industrial base, so they have something to work with if they can get some reforms done. Not so in Greece.
But maybe I'm just whistling in the dark here. If interest rates spike and the ECB stops buying debt all talk of longer term sustainability will be moot.
These numbers are not long term sustainable I dont think, a financial bubble and loose credit meant that banks could fund governments in increasing their debts in boom and recession, but now they have seen that the downside of that is bailing out the banks, and ever increasing leverage.
The amount of government debt the non bank private sector wants to hold now is maybe half the existing stock. Higher real interest rates might increase that level somewhat by encouraging saving, as might mandated savings. The alternatives are inflation or default, or trying to float a giant government hedge fund to take on the leverage, the EFSF plan.
You could well be right. But I'm still somewhat hopeful because the EU and the eurozone as a whole is less indebted than the US or Japan. So the problem becomes one of sharing the burden, which is the rational thing to do considering the disastrous consequences of an Italian default.
I don't think the the EFSF will play much of a role in that. Ultimately the ECB will have to keep Italy's (and later Frances) bond yields at a sustainable level. They will have to do what the Fed and the Bank of England have been busy doing all along: monetize the debt. Trouble is, they're not legally permitted to do that, but I think the Germans are pragmatic enough to let it happen. The question is when.
