This first issue of the revived Rivista di Politica Economica is a monograph, entirely dedicated to the issue of public debt. The first three papers, by Lorenzo Codogno, Andrea Presbitero and Stefano Caselli, take stock of what we know about the seriousness of the problem in the Italian context and its impact on economic growth, the stability of the banking system and the competitiveness of enterprises. The next three papers - one by Sofia Bernardini, Carlo Cottarelli, Giampaolo Galli and Carlo Valdes, a second by Marika Cioffi, Pietro Rizza, Marzia Romanelli and Pietro Tommasino, and the third by Gabriele Giudice - ask about possible solutions, also in the light of the developments taking place in Europe regarding the governance of the Eurozone that Marcello Messori's paper deals with. The last two papers, by Ugo Panizza and Leonardo Becchetti, deal with what are often touted as solutions, but are illusory: increasing the deficit to push up the denominator of the debt/GDP ratio, repudiation of debt, monetisation and exit from the euro.

• The large amount of public debt not only generates an overall signalling effect on the credibility of the country system but also produces specific effects on the real economy, which are well analysed and described by economic research.
• Within the real effects of debt, the consequences on corporate financing have been poorly investigated. The little empirical evidence confirms the anecdotal knowledge that sees a strong link between spreads and the cost of corporate financing. This is particularly critical in the Italian system where bank loans are the predominant form of corporate financing and banks are the main holders of government bonds.
• It is necessary to define a conceptual model that brings into focus the channels through which spread variation propagates to arrive at the cost of funding. The bank's balance sheet, in its assets and liabilities, makes it possible to clarify the critical junctures of this process.
• On the asset side, the spread conditions the reallocation of the portfolio to balance the higher risk leading the bank to ration credit and to raise the return for the same risk. The liability side conditions the bank's choices with respect to deposits, interbank funding and bond funding. A growth in the spread leads to a growth in the cost of funding, resulting in a growth in lending rates to defend the interest margin. - Reducing the dependence of the cost of financing to businesses on the spread can only be achieved by implementing choices for a profound restructuring of the banks' supply model, with the aim of developing a clear capital market offer that allows businesses to evolve their financing structure, with greater weight given to equity and debt funding through alternative channels.

JEL Classification: G21; E43; E44.
Keywords: interest margin, spread, loans, bank funding.

• This paper analyses the episodes of public debt reduction that have occurred in advanced economies since the Second World War. Thirty episodes of large reductions, i.e. greater than 25 points, in the debt-to-GDP ratio are identified.
• Four main approaches were successful. First, unexpectedly high inflation eroded a significant percentage of the public debt in the immediate post-war period. Second, during the Bretton Woods era, a mix of financial repression, sustained economic growth, and moderate inflation helped reduce public debt. Third, since the 1980s, many advanced economies pursued what we call 'orthodox' fiscal adjustment policies, i.e. they improved their primary balance by reducing expenditures and/or raising taxes. The fourth approach, debt restructuring, has only been implemented in one case, in Greece in 2011-12.
• A key finding of the paper is that, contrary to widespread political publicity, public debt reduction has never been achieved through expansionary fiscal policies (reducing taxes or increasing spending), with the hope that this would set in motion sufficiently strong economic growth to lead to a reduction in public debt (the so-called 'denominator approach'). Empirical evidence suggests that, under current conditions, a sufficiently large primary surplus is the only viable option for reducing the debt-to-GDP ratio.

JEL classification: H63, H62, H12, H60.
Keywords: public debt, fiscal adjustment, debt sustainability, primary surplus.

• The paper discusses the feasibility of a debt redemption fund (European Redemption Fund), which would pool a share of the national public debts of the euro area countries.
• The potential benefits of such a scheme in terms of reduced systemic risks are discussed and the characteristics the fund should have in order to avoid ex ante transfers between participating countries and to ensure significant debt reduction in the medium term are outlined.
• The advantage of the scheme is that it reduces the likelihood of a liquidity crisis in countries with sustainable public finances but high public debt. It is important to note that participating countries would not be required to make a different budgetary effort than in the absence of the Fund.
• In particular, an annual contribution to the Fund determined according to the amount of debt transferred, the GDP and the creditworthiness of each country could be defined in such a way as to significantly reduce the area's debt over the medium term and to avoid systematic transfers of resources between countries. At the margin, incentives for fiscal discipline would not be affected

JEL Classification: E6, H12, H60.
Keywords: Eurozone, sovereign debt, debt redemption fund, financial stability.

• The euro is a success story of which Europe should be proud. But one element of the Economic and Monetary Union (EMU) is still unfinished. The European sovereign debt market has not evolved with the changeover to the euro, which penalises the effectiveness of monetary policy, exposes European financial markets and the economy to instability, and reduces Europe's ability to influence and protect itself against global economic and political developments. To overcome these critical issues, the introduction of a European safe asset seems a necessary step.
• A European safe asset can be conceived without having to resort to the mutualisation of national debts. A European institution could be mandated to issue the European safe asset (E-bond), granting the member states the amounts thus raised on the market through senior loans, which would replace part of the existing sovereign bonds. With this construction, a safe asset of the size of 15-30% of European GDP could be created without the need for common state guarantees and without significant collateral effects. An instrument with these characteristics would be sufficient to make European markets more stable and efficient and to support their development and the integration needed to finance the transition to a sustainable economy and to strengthen Europe's geopolitical relevance.
• The introduction of a European safe asset is a complex political challenge, but it could contribute to the completion of the Economic and Monetary Union by increasing its benefits and favouring a better distribution among its members. The benefits could be significant for Italy, which would enjoy greater financial and economic stability, better conditions for private investment and more room for public investment, essential conditions for more sustained growth and more favourable debt dynamics.

JEL Classification: E52, E62, E63, G10, G12, G15, G18, G20, H60, H63.
Keywords: economic and monetary union, safe assets, E-bonds, public debt, fiscal policy, monetary policy, interest rates, capital markets, financial markets, financial institutions.

• The Treaty reform of the European Stability Mechanism (ESM) expands its functions to such an extent that it transforms the current financial manager of sovereign crises into an institution for the prevention, control and management of such crises. There is thus a risk that the ESM will also assume the power to decide whether a euro area member state, forced to activate a European aid programme, must first restructure its public debt.
• In this eventuality, Eurozone countries with high public debt - such as Italy - would be exposed to strong and distorting instability. It is therefore advisable to prevent the ESM from assuming such power or, at least, to minimise the risk of Italy activating a European aid programme. The recurrent recourse to flexibility margins in the management of public budgets does not go in the desired direction and must, therefore, be replaced with other strategies.

JEL Classification: E62, E65, H12.
Keywords: crisis management, crisis prevention, public debt restructuring.

• The orthodox method of solving the public debt problem is to adopt prudent fiscal policies that lead to a reduction in the debt ratio with a long series of budget surpluses or balances. This is a difficult solution because it requires either higher taxes or a reduction in public spending.
• Some observers have proposed 'easy' solutions to the debt problem, ranging from the idea that increased public spending can reduce the debt ratio, to monetising public spending or even repudiating debt.

This article suggests that there are no easy solutions for difficult problems.
JEL classification: H62; H63; E31; E41.
Keywords: public debt, inflation, default.

• Faced with the structural problems of our country's economy, there is a strong temptation for drastic and simple solutions to complex problems. The exit from the euro as the main route to monetary sovereignism that includes the option of a 'Japanese' macroeconomic policy with no limits on the growth of public debt is one of them.
• The paper illustrates the many reasons why this 'simple' solution would have undesirable and possibly dramatic effects by challenging the many clichés circulating in the sovereignist narrative. It addresses issues such as the relationship between economic value and money creation and the effect of competitive devaluations.

JEL classification: H63, E42.
Keywords: public debt sustainability, competitive devaluation, monetary policies.