Susanna Riva During the International Economics Festival in Turin, Bank of Italy Governor Fabio Panetta clearly outlined the dominant role of US interest rates in the current global financial environment. He also recalled remarks made in Bangkok on the sidelines of the International Monetary Fund meetings , confirming that the epicenter of rate hikes is in the United States.
US rate hike is global epicenter
Panetta emphasized that rising interest rates in the US are not simply a local phenomenon, but an " epicenter " capable of dragging markets around the world. When the Federal Reserve pushes for higher rates, interest rates rise everywhere: central banks in other countries respond to the pressure, capital flows toward higher yields, and government bond valuations adjust.
This mechanism is at the basis of the so-called spillover or “overflow” which, in simple terms, means that more restrictive conditions in the USA spread across the Atlantic.
Repercussions on Europe: spillovers and widening spreads
The spillover from US rates manifests itself in Europe above all through spreads , that is, the difference in yields between government bonds of different countries.
Panetta recalled that in Germany rates increased more moderately than in Italy, while in France growth was more accentuated due to the “ high deficits ”.
Spread between Germany, France and Italy
The spread serves as a gauge of investors' perceived risk: a widening indicates a demand for higher premiums to keep a country's debt at risk. In this context, Germany saw a more moderate increase, while France saw a more pronounced increase, reflecting concerns about its large deficits. Italy, despite its high debt , has benefited from more solid public finances than in the past, thus mitigating the effect of an excessive widening of the spread.
Italian debt in a new light
According to Panetta, "Italy has a high debt but public finances are far better than in the past." This statement is intended to convey that, although the debt-to-GDP ratio remains high, the ability to manage public spending and maintain market credibility has improved. The governor also reiterated that fiscal prudence is not at odds with social cohesion: "Having the accounts in order is an advantage in supporting interventions to help the most vulnerable."
Panetta's speech highlights three key points: the centrality of the US interest rate hike, the spillover mechanism amplifying European spreads , and the need for Italy to reconcile high debt with more prudent public finance management. The message is clear: vigilance over global markets is essential, but sound domestic policies can mitigate the effects of an external financial storm.