Europe News

Spain's economy minister says he's not concerned about Italian bond market contagion

Key Points
  • Lower sovereign bond yields in Spain, compared to a spike in Italy, reflect the "good fundamentals of the Spanish economy," he said.
  • A rise in yields — borrowing costs — can reflect that a country's government has become more risky to lend to in the eyes of international investors.
  • The Italian bond market has recorded one of its worst weeks since the euro zone crisis with the 10-year yield more than 50 basis points higher in the last week of trading.
VIDEO1:2001:20
Spain's economic growth providing lot of confidence: Economy minister

Spanish Economy Minister Roman Escolano is not concerned about the recent sell-off in the Italian bond markets, saying there is little contagion to other European markets like Spain.

Lower sovereign bond yields in Spain, compared to a spike in Italy, reflect the "good fundamentals of the Spanish economy," he said. A rise in yields — borrowing costs — can reflect that a country's government has become more risky to lend to in the eyes of international investors.

"We have been producing good economic results with the situation in the banking sector and public finances," Escolano said in Brussels, adding that on Wednesday Spain made a repayment to the European Stability Mechanism reinforcing confidence in the "evolution of the Spanish economy."

VIDEO2:0702:07
Want constructive dialogue between Rome and Brussels: Moscovici

The Italian bond market has recorded one of its worst weeks since the euro zone crisis with the 10-year yield more than 50 basis points higher in the last week of trading.

The difference between Italian and Spanish 10-year bond yields is now at 100 basis points, the widest it has been since 2012. However, Escolano ruled out contagion saying "we are pretty confident on the stability, soundness and robustness of the Spanish economy."

VIDEO5:0905:09
Luxembourg finance minister: Italy has always been faithful partner of the EU

He added that the remarks Thursday from new Italian prime minister elect, Giuseppe Conte, reflect a "commitment to the European tradition of Italy" and that he hopes the new Italian government will "contribute decisively" as there are "big debates about the future of the euro zone and Italy will and has always been a big part of that."

Italy has a debt pile of more than 2 trillion euros and a debt-to-gdp ratio of over 130 percent. Bond market investors have become increasingly concerned with the Lega and Five Star Movement's economic program that entails repealing existing labor reforms and a fiscal loosening.

The fear is that it might lead to confrontation with European policymakers if it leads to a breach of the Maastricht Treaty fiscal rules.

VIDEO1:3501:35
Italy’s incoming government ‘strongly framed by the outside’: Analyst