Columbia International Affairs Online: Policy Briefs

CIAO DATE: 09/2012

Can Italy and Spain survive rates of 6-7%?

Daniel Gros

July 2012

Centre for European Policy Studies

Abstract

The sentiment that the euro is now in real danger is based in large part on the widespread conviction that interest rates of 6-7% are simply unsustainable for both Italy and Spain., After taking a closer look at the fundamentals, however, Daniel Gros concludes in this new Policy Brief that both countries should be able to live with this level of interest rates for quite some time, but only if they mobilize domestic savings, which remain strong in both countries. For Spain, some debt/equity swaps are also needed.