Spreads falling, for the FT Italy and Spain are no longer “the periphery” of the Eurozone

MILANO – Italy and Spain shake off the label of “periphery” of the Eurozone. Their respective financing costs have fallen to a 16-year low compared to Germany and investors are rewarding their budget discipline, despite growth struggling in the Bel Paese.

It’s the Financial Times to remove the annoying name from the two Mediterranean economies, fearing instead for the sharp increase in the debt of other Eurozone states, traditionally considered safe.

Spreads falling for the two economies

The differential between the Italian ten-year BTPs and the German Bunds – underlines the City newspaper – narrowed to around 0.7 percentage points (70 basis points), reaching the lowest level since the end of 2009. The Spanish dynamic was even more marked, with the Spread falling below 0.5 percentage points, to its lowest level since the period preceding the euro crisis.

“We are seeing a merger between the periphery and countries previously considered safer investments, such as France, Belgium and Austria,” observes Ales Koutny, head of international rates at Vanguard, adding that “markets have long memories, but with the right incentive they are willing to move on.”

The perception of risk in Europe is changing

The sustained growth of the Spanish economy and the more cautious budget policies of the Italian government are therefore reducing the perception of risk, observes the British newspaper, while countries long considered more solid have come under observation.

An example is the Francewhere huge government deficits and political turmoil have pushed borrowing costs above those of Spain. But also the Germania is changing its skin: what was once considered the safe haven of the Eurozone has been subject to a revaluation by the markets after launching a trillion-euro spending plan.

Yet in Italy growth is struggling

According to Vanguard projections, spreads will narrow further next year, bringing Italy’s to 0.5-0.6 percentage points over Germany and Spain’s to 0.3-0.4 percentage points.

As for growth, the OECD has predicted slight increases for the Italian GDPin the order of +0.6% in 2026, from +0.5% this year, up to +0.7% in 2027. “Italy has a considerable public debt and new factors such as the aging of the population and, perhaps, defense could create further pressure”, he explained in a recent interview with the Republic Emilia Soldani, economist from the Economic Studies department of the Parisian organization.

The OECD points the finger at weak exports, following the increase in global tariffs, and subdued household demand, despite the increase in real incomes. These factors, he says, will weigh on growth in the near term.