Tuesday, October 16, 2012

Rates Are Low in Spain and Italy...

By historical standards.

I finally managed to paint the picture I wanted to see  illustrate the absurdity of the claim that fiscal profligacy is causing rates in Italy and Spain to "spike." Here's rates for both in historical context.
I'll admitt I was taken aback when I saw this. I knew rates weren't incredibly high in historical context, but I had no idea how relatively low rates still were. So Spain and Italy had no trouble financing their debts at rates twice as high fifteen years ago. What's changed recently?
Notice the plung in nominal income growth right after 2009. The recession of the early 2000s doesn't even show up (Europe went into recession then too, right?) These "high" rates are unsustainable in a tight-money environment; if the ECB would play ball and stabilize nominal GDP in the Eurozone, it'd be smooth sailing.

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