“Berlusconi scandal” talk has inflated the Italian cost of borrowing over and above the impact of economic fundamentals

Have former Italian Prime Minister Silvio Berlusconi’s scandals and court cases had a significant effect on the cost of Italian borrowing? Costas Milas and Gabriella Legrenzi assess the impact of “Berlusconi scandals” on 10 year Italian bond yields by using data from Google search queries as a proxy for interest in Berlusconi’s troubles. They find that over the last four years, valid questions about the lack of sustainability of Italy’s debt have been triggered not only by economic factors, but also by talk related to Berlusconi scandals. Indeed up to 10 per cent of the variance in the spread between 10 year Italian and German bond yields can be attributed to “Berlusconi talk”.