The caretaker government of Lucas Papademos has finally signed the agreement with the other political leaders of Greece, essential for receiving the second wave of aid (of 130 billion euros) and avoiding default. Yet the Troika (EU, ECB and IMF) still does not seem sure of wanting to hand over the rescue package to the Greek country. Yesterday the Eurogroup postponed the decision to grant aid until next week for lack of sufficient guarantees on the austerity measures decided by the Papademos executive. However, if not for the Greek agreement, for the Monti effect the spread reversed its trend and continues to decrease.
spread – The editorial staff of Advise Only has drawn up a graph (more exactly a “infographic”) which explains the reactions that start from a lowering of the spread between the XNUMX-year BTP, an Italian government bond, and its German counterpart, the Bund. It would engage a virtuous circle which would bring benefits to the entire Eurozone. There are two immediate effects of a hypothetical narrowing of the Btp-Bund gap. Firstly, the financial markets are gaining greater confidence in Italy and this would cause the spread to continue to decrease. Furthermore, the interest that the Italian State has to pay on the debt decreases. Therefore, the public funds available to the government increase and which, if invested correctly (for example in research and development), can lead to economic growth in Italy. With the increase in GDP, the debt/GDP ratio decreases and this again leads to greater confidence in the financial markets towards our country. This is the theory but in practice the differential only decreases if the conditions are right and, if for now the Monti government seems to be doing its job, it is still too early to tell.
Portugal - The maneuver of the ECB (LTRO at 3 years) seems to have restored investor confidence about the purchases of the bonds of peripheral countries. For everyone, except for Portugal. The main reason that makes the Lusitanian country so unattractive is linked to the expectations of one sharp recession in the current year for the economy, with the associated difficulties for the government to fail to obtain market financing Next year. The market seems confident about a private participation in Portuguese debt (“Private Sector Involvment”), the growth of rates on Portuguese 10-year government bonds does not seem to stop (Portuguese debt seems to be traded in the same way as the Greek one) at least until when the “Greece case” will not be resolved and there will be no clarity on how to deal with the financial “gap” that hangs over Portugal's finances. Advise only has drawn up a graph (see image) which makes it possible to compare the yield rates on Portuguese ten-year government bonds and their Greek counterparts with a time gap of 9 months.
