Economy Mass Media » European bond spreads

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As the credit crunch drags on, markets are driving a harder bargain with even sovereign borrowers in rich countries. The interest-rate spread between Germany’s government bonds and those of other euro-area countries has widened sharply. The shift is most marked for countries with shaky public finances: Italy’s public debt was 105% of its GDP last year; the ratio in Greece was 93%. Both countries are set to run budget deficits of 2-3% of GDP this year. But even Spain, which has low debt and a budget surplus, has been penalised. This suggests that solvency is not the markets’ main worry. Rather, investors are demanding a higher price for holding debt that trades in less liquid markets than Germany’s bonds do….
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