by Paolo Becchi and Giovanni Zibordi on Libero, 04/12/2018
Because unlike the spread crisis of 2011 with Berlusconi and Monti, the spread today is a bluff? This is what we will now try to explain. The spread is a difference between Italy and Germany in the yield of government bonds, but the anomaly is more on the German side than on ours. Let's put it in simple terms: if in Germany the rates are at 3% and in Italy al 6% or if they are in Germany 0% and in Italy al 3% the “spread” is always 3%, i.e. “300 points”, but it's the same thing? Obviously not.
In the first case, Italy pays too much, in the second case Germany pays too little.
This is more or less what happens now with Di Maio and Salvini. But the fault is not ours but rather Germany's which pays too little. In Germany today those who buy short-term securities receive less than zero, that is, he must pay the State to have them, and those who want ten-year bonds receive at most 0,3%. However, inflation in Germany is higher than in Italy, at the moment it is the 2,2%, for which the "poor" German loses a 2,5% per year in real terms if it buys short-term securities and a 2% if he buys the riskiest ten-year ones.
In Italy, those who buy government bonds receive around 1% (for Bots and CCTs, for example, between one and two years) and the 3,3% for ten-year BTPs. These are fairly low rates, especially when considering inflation. Inflation in Italy has risen for less than 1% a year ago at 1.7% (last data) so those who buy short-term or variable rate securities such as CCT and BOT have not yet recovered it and those looking for ten-year securities (which however can fluctuate in price) gets a 1,5% approximately real return. These are more normal returns, there is nothing excessive, they are not rates that indicate default. In the 2011 Berlusconi's famous spread crisis which had gone beyond "400 points" was instead due to rates at 6-7% in Italy and others 2% in Germany.
Let's do a little history. Before the global financial crisis of 2008 it was not known what the spread was, meaning that interest rates across Europe were the same. No spreads! This was a euro-induced anomaly: an artificial construction that distorts both exchange rates and interest rates by forcing them to be equal across different economies. It's a shame that this artificial forcing suddenly explodes every now and then! In the 2007 almost all of Europe has had interest rates on public debt since 3% in su, like those of Italy today which seem like a great disaster (and inflation was barely higher than today). Before the crisis 2008 it was also normal in Italy to pay between 4 and the 5% on government bonds (and we add, also on home loans). Today a twenty-year fixed rate mortgage costs around 2% and a BTP a 10 years costs on 3,3%. Low returns, both compared to the previous story and to what happens in the rest of the world, dove, for example in America, rates on ten-year bonds are at 3,3% and home loans between 4 and the 4,5%.
BUYING A HOUSE IN ROME, PARIS, MADRID
Let's go back to current events. The newspapers today never tire of repeating that the "spread of 300" is a problem because mortgages are rising. Bene, the spread jumped to a 300 points (because the BTPs have collapsed) last June. Afterwards it swung around 300 so almost six months have passed and we should therefore see an increase in mortgage prices in Italy. It's a shame that they remain average instead (for a fixed rate) around the 2% (massimo 2,2%), which is one of the lowest levels in history. It will be said that in the rest of Europe, where the spread remained low, they pay less than us. This is also not true: for example in Spain with spreads of 120 points only, Mortgages cost the same as here, Between 1,9% e 2,1%, and in France with an even lower spread they cost between 1,8 e 1,9%. Even in Germany fixed rate mortgages cost around 1.7% so despite the 300 spread points the difference between Italian and German mortgages is approximately 30 points (Meaning what 2% from us and 1,7% from them).
In Germany, however, the state is so virtuous that every time it sells government bonds it earns a profit in real terms 2% the year. The GDP and therefore the taxes it collects, increase by 2% per year only thanks to inflation and the State, however, can pay zero interest (zero!) so he profits from going into debt! The Italian state, on the other hand, pays approximately 1% for short-term securities such as Bot and CCt, that is, just below inflation (no 1,7%). He's still doing well here. But he has to pay, “due to Salvini and Di Maio”, a real return on 1,5% on long-term ones (Ten year BTP).
As everyone knows, in the history of humanity, debt has almost always produced a return, otherwise no one wants to buy it. The anomaly is that now governments like the German one (or Austrian or Dutch) they can pay zero despite inflation around 2% and therefore make them lose the 2% a year to their unfortunate savers. It's the Germans who are in the wrong, not us.
There is a reason for this anomaly? Safe, i 2.600 billions of euros, that the ECB has since 2015 it created from nothing to buy government bonds and to finance the banks that bought them, they went almost unnoticed because they are money created only for the financial market, not to buy goods and services, money used only to manipulate interest rates and stock prices. The truth is therefore that interest rates, in the eurozone, the market didn't decide them, but the European Central Bank. In the 2017 for example the ECB came to buy 800 billions of securities, when EU states issued them (they got into debt) just for 200 billion a year. You don't need a master's degree to understand that if you are the only buyer on the market and everyone else (banks, funds, public) instead they sell to you, you set the price. That is, the price – we repeat – is not set by the market but by the ECB.
THERE IS NO LACK OF BUYERS
Let's summarize: all this scaremongering about the “300 spread” hides the fact that our interest rates are actually completely normal, vary between 1% and the 3,3% (depending on the deadlines) with inflation at 1.7%, that is, they repay more or less than inflation. Because now they should ruin the Italian state? The additional cost of the rate increase since the beginning of the year is estimated at 6 billion a year, on a public expenditure of 800 billion-odd.
On talk shows we hear people blather that the Italian state is losing the trust of investors, which will not repay the BTPs when they expire and therefore they will remain unsold at the next auctions. This is ridiculous. The Italian state collects 760 billions in taxes and must only finance 45 billions of deficits. Let's talk about finding buyers for 45 billion per year. Ora, in the world the public debt is 70 trillion and if we add the bonds of the companies on the market we arrive at 110 trillion in securities on the market. Many of these securities are from states with chronic foreign deficits or companies that are losing money and many have lower ratings than Italy. But they almost all find buyers! Why shouldn't the Italian state find buyers for 45 billion a year on which it offers a good return, better than other EU states that offer negative returns?
However, the situation in Italy is not good, in fact it isn't at all. But it is not for young people, for those who have a business and for many self-employed workers and employees. Young people continue to emigrate and the birth rate has collapsed to 350 thousand births a year for "native" Italians who, with 640 thousand deaths per year they are reduced at a rate of almost 300 thousand per year. These are the problems of our unhappy degrowth. The only problem not to worry about is the phantom deficit and who will buy the BTPs from us.
Source: https://paolobecchi.wordpress.com/2018/12/05/perche-sullo-spread-non-ce-la-contano-giusta/
