Article: “Debt Woes From Rome to D.C.” Randall W. Forsyth, Barron’s, November 14, 2011.
According to the article, “Debt Woes From Rome to D.C.,” Italian ten year bonds are trading around 7% while German ten year bonds are trading around 2%. In order to make investors indifferent to owning Italian Bonds over German Bonds, they require 5% more in interest than a German bond. Why is this?
As Italy is perceived to have a higher risk of default than Germany, due to their high debt and low economic growth, investors require a higher interest rate to compensate for the greater risk.
While German bonds are better than Italian bonds, when it comes to cuisine, the opposite is true. I think everyone would agree that pasta or pizza provides more marginal utility than a plate of bratwurst.
Economic discrimination against other nations is certainly a common practice. A poor reputation discourages investment and trading activity. Because of this, most countries have an obsession with image and perceived hegemony.
ReplyDeleteLike in many stocks I research, it seems like the higher risk you take, the more reward you (potentially) get from it. I think what Italy is doing is magnificent. Italy seems to be trying to avoid inflation, and depression by giving people a reason to invest in their country. Unlike Germany, a stable country with a relatively strong economy, Italy has.... Oh jeez, I'm starting to re-hash what you said! I'll end this post by saying that I would get the most utils out of taking that brawurst and putting it on my pizza!
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