Premium risk: a reliable indicator?
The 'Risk Premium' is the difference between the interest that two different countries are actually paying for their public debt. The money that countries lend among them is known as 'public debt' and the paid interest depends on the reliability of the country.
In Europe, the risk premium is calculated relative to a value considered estable: the 'ten-year German bond'. A high risk premium means that a country receives no money from the financial markets, because no one is willing to lend. Or, in any case, the country is funded at very high interest rates, and often unassumable, causing a long-term dependency and an acute crisis.
In the last two months, the risk premium in Spain has been fluctuating between 370 and 430 points, which means that this country needs to pay between 3.7% and 4.3% more than Germany for the money received on loans to ten years. A while ago, the risk was over 600 points.
But the risk premium is strongly dependent on statments, policies and expectations which, as shown in the graph, can suffer extraordinary variations during a single day.
So, the risk premium is a way to keep states prisoners of speculation in financial markets and do not reflect the potential of the real economy of the countries.
Creative Commons. 2013. Francesc Llorens