Photo: detail from a painting by Vladimir Kush

Dialogue between an ordinary Italian person and “the spread”

Ordinary Italian person: “Can you present yourself? I don’t speak English and I know nothing about economics.”
Spread: “I am the difference between the interest on a bond and that on an investment used as a benchmark. For example if a BTP {Italian government bond} offers an interest rate of 6% and the equivalent German government bond with the same due date offers an interest rate of 2%, then my value is 6 − 2 = 4 percentage points that can be expressed as 400 basis points."
Ordinary Italian person: “Thus you are a difference, the bigger the difference between our government bonds and those of other countries, the more we have to pay in interest"
Spread: "To spread means “to open out”, the more I open out, the greater the gap. I am a gap."
Ordinary Italian person: "Yes, but what’s the connection between me and you? I haven’t bought either Italian or German bonds."
Spread: “Your State lives on the sale of debt. It builds up about 100 billion euro of debt in a year. You are Italian, so you have joint responsibility. You cannot pull back. Anyone who buys your debt knows that there’s the risk of insolvency, thus they know that, basically, they could lose the whole or a part of their investment. The less confidence they have, the more they want in interest."
Ordinary Italian person: “Thus anyone buying German bonds considers them to be safe. He knows that he’s not risking his capital and he’s happy to get a low rate of interest."
Spread: “Yes. That’s right. The greater the inefficiency of the State, the more the State has to pay in interest. For anyone who’s buying, it’s like playing roulette. Do you remember Argentina and the tango bonds?”
Ordinary Italian person: “But the debt can just get bigger, or can it also get smaller? We’ve got to a public debt of 2,000 billion. What’s the limit? What is there apart from the spread?"
Spread: “I see that you are starting to follow what I’m saying. Apart from the spread, when the gap becomes an abyss, there’s the default. If you live on debt and continue to create it, because of your political irresponsibility, the interest rates go up gradually because you have to sell new government bonds to pay the interest owed on the existing ones and so bit by bit the debt goes up. The debt is a spiral. You are in the spiral.”
Ordinary Italian person: “How do we get out of the spiral?”
Spread: “You cut unnecessary spending or you renegotiate (“restructure” is a gentler word) the interest payments on the debt. Otherwise, the interest payments eventually eat away at the social State. Schools, hospitals and public services get closed down, street lamps get turned off, while the debt increases and increases."
Ordinary Italian person: “OK. But how is it possible that Rigor Montis has killed us with taxes and yet the debt is getting bigger?"
Spread: “The debt has got bigger because he took action on the money coming in to the State coffers, on direct and indirect taxation, causing the collapse of thousands of companies, destroying the real estate sector, and lowering consumer spending, and he hasn’t taken action on expenditure and efficiency. The result is that your economy has got worse. Just look at the ratio of GDP to the public debt that’s close to the value that Greece had two years ago.”
Ordinary Italian person: “Well, I don’t understand. If the Italian economy is falling to pieces, how come you are getting better?"
Spread: “Not only do you not understand economics and you don’t speak English but you still believe in fairy stories. My current value has nothing to do with your economy. Even a child can understand that. All the economic indicators for Italy are negative, at the worst levels since the end of the Second World War and I am below 300 points. So what have I got to do with your economy? Can I ask, are you one of those who only reads the newspapers, is that why you are asking me these questions?"
Ordinary Italian person: “So why has your value gone down?"
Spread: "’Vuolsi colà dove si puote’ {that has already been decided}, by the rating agencies, as your poet Dante would have said. However, I’ll give you a few clues. Rigor Montis has brought home hundreds of billions of your debt from the French and German banks and thus the problem of debt is becoming just a problem for you and thus I become ever less relevant. Once you have bought back 80 to 90% of your public debt no one will bother about the spread any more. This is Rigor Montis’s mission: to bring the debt back to Italy thus making the country poorer."
Ordinary Italian person: “Thus, as time goes by, you will disappear form the scene and we’ll be left with an enormous public debt all weighing on our own shoulders and no one abroad will buy it from us and to get it under control it’ll take decades and we’ll have to dip into the savings of the Italian people."
Spread: “He who lives by debt, dies by debt. Auf wiedersehen, my dear friend"