Italy: Will greed continue to outweigh risk perception for bond investors?

Despite the lack of growth and the recurring political crises in Italy, investors continue to buy Italian debt, which prevents a sharp widening of the yield spread between Italy and Germany. In a situation of very low interest rates on all the other euro-zone countries’ government bonds, Italian debt is therefore attractive for investors seeking yield. But will greed therefore continue to outweigh risk perception? Before being a political risk, this is an economic risk: Italian potential growth is zero and there is no sign of an upswing, on the contrary in fact (especially as a rise in interest rates will lead to a renewed fall in Italian corporate investment) . This could eventually lead to a very marked deterioration in Italy’s public finances, especially if governments try to stimulate demand by using transfer payments to households.