”Clashes in the suburbs. Italy versus Spain": this is the title of a Credit Suisse report on the two main economies of the periphery of the Eurozone, which confirms a trend of recent years, also confirmed by the overtaking of the spread: international investors prefer Madrid.
In fact, as known, Spain finances its public debt at lower costs than Italy: Spanish two-year government bonds yield 0,35%, Italian ones 0,56%. Same music for longer maturities, the ten-year Bonos pays 2,63%, the Italian Btp 2,80%.
In short, for investors Spain presents a less risky profile than Italy, which goes beyond the fact that in the period 1999-2012 the Spanish economy grew on average by 2,3% per year, while that of the beautiful country by only 0,9%, and that Madrid still does better according to the 2014 forecasts of Rome (which even regressed in the last quarter). And despite the fact that unemployment in Spain has reached alarming rates, far worse than in Italy.
”The current preference of investors for Spain seems to be justified not only by return of economic growth but also by a lower public debt which, even considering the dynamics of the deficit: that of Spain will still remain lower than that of Italy”, write the economists of Credit Suisse.
Then there are foreign exchanges: Spanish exports travel around 15% above pre-crisis levels (2007), the Italian ones are still below the levels of the same period. Finally, public finance: Spain's debt/GDP ratio has risen above 90% but Italy's is over 130%.
Could there therefore be a strengthening of the preference for Spain or a comeback by Italy in the clash on the periphery? It will all likely depend on three key variables: ”Public debt, the risks of political instability and deflationary tendenciesThese are things that will need to be monitored carefully. Italy will only be able to overtake Spain if it shows stronger signs of economic growth or if Spain falls into political instability,” the report concludes.
