By Stefano Bernabei and Gavin Jones

ROME (Reuters) -A previously unused English word crept into the Italian language during the euro zone debt crisis of 2011 as the country's borrowing costs soared to unsustainable levels.

Ever since then "lo spread", or the gap between the yield on Italian benchmark bonds and their German equivalents, has been brandished by politicians and the media alike as a symbol of national pride or shame, much like a sporting victory or defeat.

After the BTP-Bund gap took a rare dip below one percentage point, or 100 basis points (bps), Prime Minister Giorgia Meloni told parliament last week "this means Italy's government bonds are considered safer than German ones."

Her economy minister, aware the narrower spread in fact meant merely that Italian bonds were considered comparatively less unsafe than before, smiled and shook his head beside her.

Fourteen years ago the attention on the spread was justified. Germany's economy was the European powerhouse and the surge in Italian yields meant Rome had to pay huge sums to service its debt and risked losing market access altogether.

Times have changed, however, and many economists say that with German benchmark bond yields rising due to a planned spending splurge on defence and infrastructure, Italians' fixation with the BTP-Bund spread now makes far less sense.

"What matters for us is the level of interest rates, not the spread with Germany," said economist Tito Boeri, a former head of Italy's state pensions agency. "If German yields rise that doesn't help Italy's public accounts."

INTEREST BURDEN

Rome spends some 90 billion euros ($101 billion) per year, or 4% of gross domestic product to service its 3 trillion euro public debt. With the yield on 10-year BTPs still above 3.5%, that implies a heavy burden on state coffers regardless of the narrow spread with Germany.

At around 135% of GDP, Italy's debt is proportionally the second-largest in the euro zone after Greece's, and it is forecast by the government to rise through 2026.

Analysts say Meloni's unambitious but relatively prudent economic policies have reassured markets, but the recent narrowing of the spread is mainly down to developments in Germany and the United States.

Economist Lorenzo Bini Smaghi, a former European Central Bank board member, said investors' waning appetite for U.S. Treasuries had benefited European bonds and particularly high-yielding paper such as Italy's.

"If I consider Europe as a safer bet, partly because I expect the dollar to fall, I'm going to invest in European bonds, especially those that offer higher returns," he said.