For example, interest rates for long-term government bonds in Italy and Spain, even in 1995, were 5 to 6 percentage points higher than the rates for German Federal Bonds. As the home of the former anchor currency in the ERM, Germany did not benefit directly from this process of interest rate convergence.
Firms with low profitability are more likely to cease operations due to poor performance and, in the process, potentially default on their debts. Gearing looks at how much debt relative to equity there is in the business. Firms with high gearing are more vulnerable to asset price falls and losses from their operations as they have a relatively small equity buffer.