Talkin' Italian 10-Year Bond Spread Blues

The state of the health of Italy's economy is of serious global concern. Who do you believe?

No coins to toss in the Trevi fountain
No coins to toss in the Trevi fountain
Marco Zatterin


TURIN — If you think that J.P. Morgan is just another agent of the villains of international finance under the command of Public Enemy No. 1, George Soros, close this page.

If, instead, you think that there is even a chance that they are a team of economists and analysts that are trying to do their job — and maybe that they say things worth considering about the Italian economy — look at the graph below on the so-called "Spread," the difference between Italy's and Germany's 10-year bond yields.

They say that if the relationship between the deficit and GDP exceeds 2%, the difference between interest rates on 10-year Italian treasury bonds and their German cousins will reach 250 basis points — a standard unit of measurement for interest rates — which would bring it back to this summer's levels, complicated but sustainable. J.P. Morgan, however, maintains that at 2.5% the 300-point spread would be exceeded, and at 3% it would reach a 400-point spread.

You need to verify the words of JP Morgan.

At this point my mother's barista would ask, "Where's all this coming from?"

An easy response. The Italian Parliamentary Budget Office has calculated (citing the excellent Dino Pesole from Il Sole 24 Ore) that with the shock of lowering 100 basis points across the yield curve (from January 2018, and for the whole period of the budget forecast, therefore to the end of 2020), the interest expense would rise by about 1.8 billion euros in the first year, 4.5 billion in the second year, and 6.6 billion in 2020. As a result, the fiscal deficit would rise by 0.1, 0.3, and 0.5 percentage points of GDP respectively. It's not difficult to predict what would happen if the spread increased by 200 basis points, and so on.

So if we push the deficit to 2.5%, compared to the 1.6% that Economy Minister Giovanni Tria hopes for, we would have spending margins about 14 billion euros higher, but we have to expect 12.9 billion in disbursements in three years. This is in hoping that the structure of interest rates would remain unchanged — which is improbable.

If you've reached this point, it means that you think you need to verify the words of J.P. Morgan.

So you have two options. You could convince yourself that they're all slaves of Mr. Soros and toss this article away. Or, you could consider that it's better to remain vigilant in controlling the trend of Italy's deficit — reducing the debt that weighs on our shoulders — and that it might be a good idea to share it with friends or enemies. And maybe, that making ends meet means spending more money than you can get with this change of course without considering the knock-on effects on companies and banks of a deeper loss of confidence in the Italian system. We just hope someone can make the government understand.

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In Argentina, A Visit To World's Highest Solar Energy Park

With loans and solar panels from China, the massive solar park has been opened a year and is already powering the surrounding areas. Now the Chinese supplier is pushing for an expansion.

960,000 solar panels have been installed at the Cauchari park

Silvia Naishtat

CAUCHARI — Driving across the border with Chile into the northwest Argentine department of Susques, you may spot what looks like a black mass in the distance. Arriving at a 4,000-meter altitude in the municipality of Cauchari, what comes into view instead is an assembly of 960,000 solar panels. It is the world's highest photovoltaic (PV) park, which is also the second biggest solar energy facility in Latin America, after Mexico's Aguascalientes plant.

Spread over 800 hectares in an arid landscape, the Cauchari park has been operating for a year, and has so far turned sunshine into 315 megawatts of electricity, enough to power the local provincial capital of Jujuy through the national grid.

It has also generated some $50 million for the province, which Governor Gerardo Morales has allocated to building 239 schools.

Abundant sunshine, low temperatures

The physicist Martín Albornoz says Cauchari, which means "link to the sun," is exposed to the best solar radiation anywhere. The area has 260 days of sunshine, with no smog and relatively low temperatures, which helps keep the panels in optimal conditions.

Its construction began with a loan of more than $331 million from China's Eximbank, which allowed the purchase of panels made in Shanghai. They arrived in Buenos Aires in 2,500 containers and were later trucked a considerable distance to the site in Cauchari . This was a titanic project that required 1,200 builders and 10-ton cranes, but will save some 780,000 tons of CO2 emissions a year.

It is now run by 60 technicians. Its panels, with a 25-year guarantee, follow the sun's path and are cleaned twice a year. The plant is expected to have a service life of 40 years. Its choice of location was based on power lines traced in the 1990s to export power to Chile, now fed by the park.

Chinese engineers working in an office at the Cauchari park


Chinese want to expand

The plant belongs to the public-sector firm Jemse (Jujuy Energía y Minería), created in 2011 by the province's then governor Eduardo Fellner. Jemse's president, Felipe Albornoz, says that once Chinese credits are repaid in 20 years, Cauchari will earn the province $600 million.

The Argentine Energy ministry must now decide on the park's proposed expansion. The Chinese would pay in $200 million, which will help install 400,000 additional panels and generate enough power for the entire province of Jujuy.

The park's CEO, Guillermo Hoerth, observes that state policies are key to turning Jujuy into a green province. "We must change the production model. The world is rapidly cutting fossil fuel emissions. This is a great opportunity," Hoerth says.

The province's energy chief, Mario Pizarro, says in turn that Susques and three other provincial districts are already self-sufficient with clean energy, and three other districts would soon follow.

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