In the European Union, can countries like Spain, Germany, France, Italy etc all borrow at the same interest?
Or do they pay a different interest? I heard on TV that countries like Greece took on much more debt since their interest rates were lowered when they joined the Euro. So the debt crisis is supposedly a direct result of that. Before that they would have borrowed far less since the interest payments were higher. But does that really make sense? Do all countries in the EU borrow money at the same rates or do some countries borrow at lower rates than others?
Economics - 5 Answers
Random Answers, Critics, Comments, Opinions :
1 :
Without any help from the EU and IMF they will pay the different rates based on market sentiment. Greece and Ireland bond rates were almost 6% when the problems came out. But all have to pay back their debts equally, North or South.
2 :
No. That would be like saying that all residents of Minnesota can borrow at the same rate irrespective of their credit risk.
3 :
Countries with the same risk rating can borrow at the same rate of interest. One country with a worse risk profile cannot and should not receive the same interest rates as a less risky alternative, in an open market, and typically won't get the same effective rate unless it is subsidized in some way
4 :
Different countries = different rates. Government of a country is the borrower, and borrowers with less income and more risk have to pay higher risk.
5 :
It does really make sense to me. I don't really understand why having the same currency means that when a country has a problem the rest should go and bail it out. And why the bankruptcy of a country would be a problem for the stability of the currency? It's like if a big company like..... let's say Enron, goes bankrupt the rest of the companies should bail Enron out like if Enron's bankruptcy was going to mean the end of the $. In old-style economy governments would overspend and then use the central bank to print more money to solve the deficit problem. That creates a lot of troubles. With this policy the governments have to be really accurate about their finances. But of course old-time school is always there and it seems that the ECB is going after FED and making the same mistakes.
