Italy’s spread problem is not (always) a credit story
Occasional doubts over Italy’s role in the monetary union adds political risk premium, argues economist
The BTP-Bund spread is routinely framed as shorthand for Italy’s fiscal credibility. Market data tells a more selective story. Beyond credit and liquidity, the spread intermittently reveals a political-institutional risk premium, which at times also reflects implicit redenomination risk. This would occur if one or more countries exited the monetary union and its euro-denominated bonds were
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