Alby_da_Wolf said:
Italy's debt started growing without control with the centre-left wing governments during the '70s. The government under which the state's deficit grew the most had the current Prime Minister Mario Monti as one of the vice-ministers of the Balance (back then we hadn't a single Ministry of Economy, but three separate ones, Finance, Treasury and Balance), in three years the debt grew by more than 44%. And the banks have a serious role, EU central bank doesn't lend directly to EU states like a true central bank, but through big private merchant banks, that obviously make the interest rate rise to get their profit. The conflict of interest is obvious, banks profit directly from speculation and indirectly thanks to increased interest rates on the money borrowed by the attacked states from BCE. Who devised that mechanism is either crazy or fool or a thug. |
Either Italy banking works a LOT different then everywhere else... or your just mistaken with how governments get money lended to them.
Typically... and i'm pretty sure just... everywhere governments "borrow" money by issueing bonds.
Bond's are auctioned on, and therefore the interest is based on how credible your government is at paying it's debts back.
When Bond Yields go up like in the case... those who have already bought bonds (Like the banks) lose because they can't sell their bonds to other people without taking a loss.
Example. Say I buy a 20 year $100 bond for $95. That is a yield of 5%. Now say bond yields shrink, to 3% tommorrow. I can now sell my 100 bond for $97 to a private investor.
Made $3 and I didn't even have to wait 20 years.
Now if the yield rises to 10%. I can only sell that bond for $90. I'm going to lose money unless I hold on to it... and if the country is going to default. Like Italy. I'll be lucky to see $50! (See Greece and the 50% haircuts.)
