Can someone please explain the highlighted part
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Hi Saumya,
The explanation is simple, it says that a decade ago EU institutions had bailed out Greece so if interest rate rises again Greece’s debt will not be exposed to it much knowing the fact that EU may once again bailout Greece and so Debt/GDP ratio will fall more than Italy’s Debt/GDP
I hope this explanation helps you!
Yeah, I understood that part. My question is if EU institutions own Greece’s debt, it means Greece has a liability towards EU institutions. So when the interest rate rises, the value of debt instruments (here, liability) falls, right? That should be a good thing. So, what’s the meaning of the less “exposed” part?
Saumya if you consider the current scenerio than you must be aware the floating rate borrowers suffered due to a sudden spike in the rates and what I think is this, as rates will hike Greece liability towards EU will rise as it has to pay a higher amount as interest and knowing the fact that EU had already bailed out Greece a decade ago there is a hope that if rates rise and Greece fails to make a higher int payment EU will once again bail out Greece.
I hope now it’s clear to you!