In preparing for new elections in which, unfortunately, he says, we will be forced to vote again with the Porcellum (incidentally: and who was supposed to change the electoral rules if not the majority party he owns?”) Silvio Berlusconi launched the other day to say that we really don't care about the spread.
It's really like this? Certainly not. Can you lightly let go and move on? Not even that. We need to clarify by remembering what is at stake.
Well, when it exceeds very small physiological levels, the spread is a serious problem for three reasons.
First, because it raises the cost of interest and makes it more difficult to achieve public debt sustainability, e.g. stabilize it in relation to GDP.
Second, because the rise in rates on Italian public debt - if in theory the spread rises both when the German interest rate falls with respect to the Italian one, and when the Italian rate rises with respect to the German one, in fact it is the second mechanism lead the dance – it innervates the entire national economy, cornering household savings, bank balance sheets and business competitiveness like boxers. Whenever the rate on BTPs rises, families suffer losses on their investments in Italian government bonds, because their price falls. These capital losses also have a heavy impact on the accounts of the banks, which have subscribed many securities of our public debt. Furthermore, the increase in the rate on BTPs also increases the cost that Italian banks have to pay for their wholesale funding. Finally, Italian companies see the cost of credit rise and further lose competitiveness compared to German ones (think, as Marchionne remarked, of zero-interest loans which cost little to German car manufacturers but cost a lot to Italian ones).
Thirdly because we are talking about the spread with Germany and, having the same currency, we have the same monetary policy and the same exchange rate. From this point of view, some observe that between 1990 and 1995 the BTP-Bund spread averaged 500 basis points (ie 5%) and Italy survived just the same. However, those observers forget to mention that in that period the exchange rate of the Italian lira devalued against the German mark by about 54% (that is, on average by 9% per year), more than compensating for the competitive disadvantage produced by of interest so penalizing in the comparison between Italy and Germany. Today that compensation is precluded from sharing the euro with Germany.
So, Mr. Berlusconi, it's really not the time to play with fire, otherwise you'll get the impression of making fun of the Italians. The rising spread impoverishes us and you should know better than the man in the street. It's unethical of you to try to confuse the cards by flattering the issue.
While we're at it, it can be seen that many in Europe fear that his umpteenth re-nomination is a source of instability. In particular, the Spaniards have complained in recent days, fearing that any Italian instability will drag them into the maelstrom. It is worth remembering that between Italy and Spain there was a run-up in spreads against Germany. If until the summer of 2011 Spain was ahead, in the autumn of last year Italy made the nefarious overtaking: it should be remembered that Berlusconi's resignation as prime minister and the taking over of the Monti government in the first ten days of November depended measure just from that. The contribution of the Monti government to regaining the confidence of the markets can be clearly seen in Figure 1. It shows that since early March the Italian spread has fallen below the Spanish one and has remained steadily below since then. At the end of October, Spain's spread exceeded Italy's by 64 bp.
What happened last week with the announcement of Berlusconi's re-nomination? This announcement takes place on Thursday 6 December. On 5 December, the Spain-Italy gap is around 90 bp. In the following days, both spreads rose – in particular on Monday the 10th, when they rose by almost 30 bps – and at the close of the market, the gap narrowed to 75 bps. Even more interesting is to observe the intraday dynamics of the two spreads. In particular, three phases of spread increases can be identified: the first on Thursday 6 is the one enclosed between the two vertical red lines; the second Friday 7 is the one between the two blue lines; the third Monday 10 is the one between the two green lines. Well, as can be seen even with the naked eye, in all three cases it is the Italian spread that rises first and seems to drag the Spanish one behind it. Therefore, it seems that Spanish fears are to some extent legitimate.
Mr Berlusconi, there is still time, think again! I doubt that your court of advisers represents the risks of the course you are undertaking. However, I can tell you that in the restaurant near the house yesterday the waiters and the innkeeper were joking among themselves about the nominations, which are attributed to her, of personalities from the jet set, making fun of her that perhaps she will also nominate Qui, Quo and Qua. I don't know Donald Duck's opinion, but I heard the innkeeper say in a low voice: this time we won't be fooled. Also for the spread, remember not to reckon without the innkeeper.
