The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2022 Euromoney, a part of the Euromoney Institutional Investor PLC.

Back to the future for Spain and Italy, debt edition

Spain and Italy's yield curve can take a lot more pain.

Seven – the psychologically important threshold for 10-year eurozone bond yields – is not the magic number. Post-super Mario's bullish comments on Thursday, here's another boost for battle-hardened euro investors, courtesy of Commerzbank. In short, market fears over public debt sustainability in Spain and Italy, given the elevated bond yields, are clearly overdone, argues the bank, citing the fact that the additional debt interest these economies might have to bear is only in line with pre-European Monetary Union (EMU) history.

First, the math. As any conventional emerging market sovereign debt analyst will tell you, when the real rate of government debt interest payments leaps above the real rate of growth, an economy’s debt-to-GDP ratio will jump without an offsetting primary budget surplus. As we have reported, Italy requires higher primary budget surpluses than its eurozone peers – and, in recent years, has achieved this – given its hight debt-to-GDP ratio at 120%. Here are Commerzbank's projections:  


In Italy, higher interest rates have a bigger impact on the public budget than in Spain over the long term because its debt pile is higher, and as a result the primary surplus needed to stabilize the debt ratio rises more sharply. If we assume a long-term nominal growth rate of 3%, Spain would have to increase its primary surplus to nearly 3½% of GDP over the long term, assuming an average interest rate on all public debt of 7%, and Italy would even need a primary surplus of 5%.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree