Maturity structure does matter and it should be of particular concern for the management of public debt. The Italian ‘authorities should, up to a point, “bite the bullet”. They should issue long-term debt even at relatively high interest rates, since accepting a shortening of the average maturity may be counterproductive: by increasing the possibility of a confidence crisis, it may lead to a larger risk premium and a higher average cost of servicing the total outstanding debt’ (Alesina et al., in this volume).

Alesina, Prati and Tabellini reach these policy conclusions in their brilliant and provocative paper and support them by two major empirical claims intended to show the reluctance of the Italian authorities to follow this harsh course.

(1) After 1985 the interest rate on the one-year Treasury Bill, to which a good part of the CCT (Certificates of Treasury) are indexed, was – thanks to the type of auction system used – being manipulated so as to keep it artificially lower than the short-term 3-months Treasury Bill. The authorities, after having kept it higher when the debt was issued, were succumbing to the temptation ‘to reduce it once the private sector is locked into an irreversible investment decision, thereby inflicting a capital loss on their debt holders’ (ibidem). Therefore they created a time inconsistency and caused an investors' confidence crisis which led to a funding crisis in 1987 and ultimately to the issue of maturities much shorter and/or more expensive.