Piazza Affari, today is in trouble and records a loss of 1,6%. The euro is still down against the dollar, to 1,1727 from 1,1783 yesterday, following the close of Wall Street. The Spread also runs, touching i 194,7 points. In addition to political events, in Piazza Affari, as in the rest of Europe, the declining data on the composite SME index of the Eurozone and international tensions weigh on, with the theme of 'duties' between the United States and China and with the probable slip of the meeting between US President Donald Trump and North Korean leader Kim Jong Un.
Political instability as seen from macroeconomic data does not pay.
But what is the spread? It is the measure of the difference between what makes the government bond of a country (that is, the bond issued to finance its expenses or to pay its debts) and what makes the government bond of a country more virtuous, in this case Germany.
If the debt rate is lowered it is easier to repay it. If it becomes high, it will be more difficult to pay for it. Moreover, the spread increases or decreases depending on the confidence of the savers on the fact that the issuing country can repay its debt as established. In short, in essence, it decreases as the credibility of a country grows.
What contributes to varying the spread? Of course, good or bad news on the country's repayment capacity; but it can also increase due to political difficulties or elections with an uncertain outcome. All elements that question the government's ability to pay its debt.
As the spread increases, the interest rate on mortgages also increases and therefore household savings will decrease; companies, on the other hand, will pay more for a loan and may decide to make fewer investments, considering the more uncertain future. Finally, if the spread increases, a state will see its debt increase without being able to make or plan an extra expense.
Italy and its Italian public debt certainly have nothing to fear from the often speculative fluctuations of the notorious “spread” value.
The reality is very different: the Italian public debt market is very small and foreign investors represent a small minority of the total. Since 2012, the ECB has in fact controlled the level of returns through purchase transactions on the markets, the “QE” desired and supported by Mario Draghi, and any sales are much more likely by Italian investors than by foreign ones.
According to data from Banca Italia, the debt stock reached 2.302 billion last March. Of this sum, approximately 1.547 billion, 69% of this amount, are held by Italian residents and the remaining 31% by non-residents. However, it is necessary to bear in mind that of these approximately 690 billion, more than half (over 360 billion) is borne by the ECB. It therefore follows that the ECB and Italian investors (households and institutions) overall hold 87% of the total Italian public debt and that only 13% is held by foreign investors.
There is more; a series of analyzes that clearly show that almost all of the additional government bonds, net of expired bonds, have been issued by the 2014 and purchased by the ECB.
This means that the confidence of foreign investors, who hold only 13% of Italian debt in government bonds, will never, ever significantly affect the volatility of the value of the spread. A mostly media mechanism aimed at influencing public opinion and creating difficulties for our own governments that find themselves “harnessed” by the rigid rules of the “fiscal compact” and by the “variable” clock-wise spread index. A financial engineering system that tends to clip the wings of competing countries.