In mid June 2011, insurance against default on Italian government bonds cost less than comparable insurance on Spanish government bonds.
Now, it cost more to insure Italian bonds than Spanish bonds. On Tuesday, Moody's downgraded Italian debt by three notches to A2, citing the the sustained increase in the country's susceptibility to financial shocks.
Tito Boeri, Professor of Economics at Bocconi University, put the blame squarely on Italian Prime Minister Silvio Berlusconi and his administration.
In a VoxEU commentary, Boeri said both countries were recently hit with deteriorating investor sentiments on peripheral European countries and both have received support from the European Central Bank.
The difference, however, is the reaction of the two governments to the credibility crisis, he said.
In that regard, Italy's Berlusconi underperformed Spain's José Luís Zapatero, according to Boeri.
Below is an event chart chronicling Berlusconi's (mostly) mistakes against Zapatero's (mostly) accomplishments.
The slow and contradictory response of the Italian Government played an important role in the crisis, said Boeri.
He also hit on Berlusconi's prostitution scandal.
Studies at the intersection of psychology and economics, based on priming techniques, showed that individuals informed about the amoral details of politicians' private lives are more reluctant to buy sovereign bonds from these politicians' countries, he said.
E-mail Hao Li at firstname.lastname@example.org.
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