Friday, July 8, 2011

Convergence or divergence (os)

It's Friday and right in front of my window, the local university day is going to start; so just a nice graph from the FAZ page. It shows the long term yield on German and Italian government bonds. It looks like that the convergence process, which ended in a nearly perfect synchronism by the end of 1998, is now going to change into a newly process of diverging yields. One of the triggers seems to be the low productivity. Nevertheless, this is only a trigger, the fear of a new vicious circle comes around the corner. Higher interest rate, combined with a large and inefficient general government are no good combination.

As deviating long term interest rates come as no surprise, to me, the time before the actual crisis looks quite amazing. Again, nothing new, but look at the huge spread in 1995 which was about 6,5 percent and declined further to nearly zero percent witin only 3 years. This must have been a great time for Italian citizens - just as for the Greeks.