Following their warning about the global bond selloff last week, Goldman Sachs focused on the “faultline” in the Eurozone, namely Italian bonds, in its Oct. 4 newsletter to customers. “The recent global duration sell-off has exposed a fault line in European sovereign credit. This has coincided with a deterioration in fiscal fundamentals in Italy, with the debt-to-GDP ratio now likely to be on an increasing path in coming years.” GS demands a “rate relief” to bring the situation under control.
Italian ten-year bonds are indeed at 4.94% and the spread between Italian and German yields has increased to over 200 points this morning, helped by the “Gaza-effect.”
The increase of Italy’s debt-to-GDP ratio is in part due to a debt-trap laid by the EU, in the form of the famous “Recovery Fund” loans. These are loans financed by bonds issued on international markets, issued by a non-state entity, the European Union). Italy has earmarked €191 billion in loans and grants, of which it has already received €35.6 billion in loans only. Since the government has announced a €38.5 billion increase of the three-year budget, it is evident how the “deterioration in fiscal fundamentals” corresponds at least partially to the new debt borrowed from the EU.
