The BTP-Bund differential drops below 91, reporting optimism and trust. But the “productivity” question remains behind the positive data
A spread like this had not been seen for some time. The differential between Italian and German government bonds dropped to 91. It hadn’t happened since 2010, apart from two exceptions in 2021 and 2018. Good, for Italy. But the good news comes in a macroeconomic context with dualistic outlines: the tax policy of the Italian government is appreciated by markets, GDPs and employment grow, industrial production shows hints of recovery, but productivity remains the Achilles heel and the markets oscillate between Euphoria and Panico. The royal economy still struggles to find a stable step.
Because the Italian spread goes down
The Italian spread at the minimums It is unequivocal signal of a renewed trust of the markets against the Bel Paese, despite the public debt has exceeded 3 thousand billion euros. A fact that means first of all and above all that the markets are rewarding the line of the Minister of Economy Giancarlo Giorgetti. The government’s tax policy, which looks to the stability pact and the “Trajan model” (less deficit, and debt work) has reassured the investors on the trajectory of the public debt, which the government aims to reduce gradually. And then there are three reasons, internal and international, which strengthen the position of Italy. The first factor is linked to the United States. The economic policies of Donald Trump (primarily duties) are creating instability and removing the capital from American assets. This is generating a strong influx of investments to Europe, where government bonds are perceived as safer. And in this flow, Italy is among the greatest beneficiaries. The second reason concerns the attractiveness of the BTPs. The yields offered are still high, but the perceived risk is decreasing. Merit, according to Moody’s, of the solidity of public accounts and a stable political framework, which makes the deficit reduction path credible. At this moment, the Italian risk/return ratio is more advantageous than that of other countries such as Germany and France. Finally, the third element is Berlin. If the German rates rise and the Italian ones fall or remain stable, the differential narrows. And that’s exactly what is happening. The bund returns are climbing, also thanks to the a thousand billion plan announced by the Chancellor Merz to finance defense and infrastructure. And this contributes further to the drop in the spread.
What does the descent of the spread means for Italy
A low differential is undoubtedly an advantage for the treasure: to finance itself on the markets costs less, and this lightens the pressure on the interests to be paid every year on public debt. Also for savers, the downhill spread is good: the price of government bonds in the portfolio salt, increasing the value of the capital invested. In addition, the low spread also has positive effects on the stock market. With more contained bond yields, capital tends to move towards the bag, looking for higher returns, thus supporting the prices of the shares. And the low spread is a sign of trust that can facilitate the credit of the banking system to companies and support foreign investments. But the real stake is trust. Such a low spread indicates that investors believe in the solidity of Italy, at least in the medium term. And it is also a political message: the Italian government is perceived as able to keep the accounts in order.
Low spread but productivity remains a question, historical
While the spread goes down as Italy is. GDP grows, 0.3% in the first quarter of 2025, accelerating compared to the growth rate of 0.1% in the previous period and in line with the first estimate, thus remaining above the initial market expectations of a growth rate of 0.2%. And Istat estimates are of a growth of 0.6% in 2025. Istat data show that, after 26 months of calm, industrial production shows ascent notes (+0.3% on an annual basis). In the first quarter of 2025, the labor market recorded strengthening signals. According to Istat, the employment rate risen to 62.7%, the highest level from the start of the quarterly series in 2004. The unemployment remained stable at 6.1%, while the inactivity dropped to 33.1%(-0.4 percentage points). The employees increased by 141 thousand units (+0.6%) compared to the previous quarter, driven by permanent contracts (+143 thousand) and autonomous (+18 thousand), in the face of a decrease in fixed-term contracts (-20 thousand). On an annual basis, the employment grew by 432 thousand units (+1.8%), with a strong increase in stable employees (+4%). Unemployment dropped by 11%, while inactive also decreased. Despite the growth of employment, productivity remains the real structural node. It is a historical problem, which today also translates into an increase in the use of layoffs in the first quarter of 2025. A signal that the increase in employed does not correspond to a full use of the workforce, nor to improve the efficiency of the production system. In essence, the country’s production engine has not yet left. In addition, the markets are volatile and with contrasting signals: they alternate sudden rally fueled by expectations on rates and better quarterly than expected, to sudden corrections linked to global fears on inflation, American duties, uncertainty and geopolitical instability and commercial wars. In this uncertain scenario, the movements of the spread can be quick and volatile. In addition, part of the merit of the descent of the spread is linked to the weakness of Germany. And Berlin has been the main commercial partner of Italy for years. His stagnation would have negative effects on Italian exports and, therefore, on our growth.
Ultimately, the spread below 91 is undoubtedly good news: it reports trust in Italy and government policy. But alone it is not enough to guarantee a sustainable recovery. We need an industrial policy and a push for productive investments. Otherwise, the risk is, as happened in the past, to attend a finance that runs and a real economy that remains behind.
