London Business School’s Lucrezia Reichlin recently discussed Italy's rising borrowing costs on CNBC’s Squawk Box programme.
Italian debt remains a major source of fragility for the country and Professor Reichlin was asked about the rise of borrowing costs for 10-year paper which has gone up from half a per cent, to just over two per cent – how worrisome is this for a country that has in excess of 150 per cent debt to GDP?
Professor Reichlin said that it is worrisome, partly because Italy is one of the most indebted countries in the euro area, but also because of a feature of the Eurozone economy. “Whenever there are ‘bad shocks’ there is a flight to safety and the countries that have the higher debts are the first to be penalised,” said Reichlin in an interview with CNBC Squawk Box Europe’s Steve Sedgwick, aired in early April of this year.
“We have seen this happen in previous crises and this is something that the European Central Bank (ECB) has to correct because this is related to the transmission of monetary policy. We do not want to have excessive differential interest rates in the Eurozone.”
The interview went on to explore inflationary pressures in the Eurozone, and monetary policy at the ECB. The interview may be viewed here.