Why Italian Borrowing Costs Have Now Surpassed Spanish Borrowing Costs

Obsessing over sovereign borrowing costs in the Eurozone is a very 2012 thing to do, but it has been observed that for the first time in a while,
Italy is paying more to borrow money than Spain is.

Spain is generally seen as the weaker of the two economies (much worse unemployment, a higher deficit, a much more fragile banking system, etc.) so this is surprising. Except the crux of the story is that Silvio Berlusconi continues to threaten to topple the Italian government, which is based on a fragile coalition of the major parties.

Berlusconi’s threat is that if he’s expelled from the Senate — over criminal convictions — then his party would withdraw support for the current Letta government, and that would require new elections, and new chaos. Hence the switch.

Discussion on Berlusconi’s fate is happening this week.

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