WYSO

As Neighbors Founder, Italy's Borrowing Costs Spike

Originally published on August 5, 2011 11:11 am
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RENEE MONTAGNE, Host:

Caitlin Kenney of our Planet Money team has this report on what's setting investors on edge.

CAITLIN KENNEY: You know how when you live next door to someone who doesn't really clean their yard or has a bunch of junked up cars out front, it's harder to sell your house? It turns out the same is true for countries. This is basically what's happening to Italy right now. Their neighbors - Greece, Ireland and Spain, they've got a bunch of bad mortgages and failed banks in their yards, and that's making things really hard for Italy.

ANDREW BALLS: Italy may be a better house than some of these other European countries. But it's difficult to be the Italian house in this deteriorating European neighborhood.

KENNEY: This is Andrew Balls, head of European Portfolio Management at PIMCO, which manages one of the world's biggest bond funds. You can think of Andrew Balls as a prospective buyer of Italy's house. And overall, he says, the house looks pretty good.

BALLS: Italy has not been getting worse. Yes they have a high level of debt, but it's not been going up.

KENNEY: The problem is that potential buyers like Andrew Balls are worried about things happening next door or down the block from Italy. They just don't trust that the other homeowners, European policymakers, are doing enough to take care of the neighborhood. They've seen how these leaders have handled Greece's problems and well, they aren't impressed:

BALLS: You have public arguments between Germany and the European Central Bank. You had huge disagreements with different countries over how to deal with this Greece situation. Naturally, you look at this, you wonder, if they have this much trouble dealing with Greece, what happens if this spreads?

KENNEY: The way Italian journalist Beppe Severgnini sees it, Germany is the one in charge.

BEPPE SEVERGNINI: You never have to forget, Italy is a bright, very lively, but young girl. And she really needs a nanny. And we have a German nanny up in Frankfurt, thanks God, who will sometimes tell us what to do.

KENNEY: Caitlin Kenney, NPR News.

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