An old spectre has returned to haunt Europe and things could get ugly |
An old spectre has returned to haunt Europe and things could get ugly
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A spectre is haunting Europe: the threat of bond-market contagion. France’s fiscal failures are the source, and now even countries that were supposedly improving their finances are in danger.
Italy, for one, has managed to cut its fiscal deficit, but its macroeconomic recovery is very sensitive to rising yields on its sovereign debt — and hence its borrowing costs. Years of fiscal mismanagement will cause its debt to hit 139 per cent of gross domestic product this year.
Trouble is brewing beyond the eurozone as well. Romania, going through another bout of political turmoil after failing to install a government on September 30, has yields of about 7.3 per cent.
We’re still some distance from a repeat of the 2010-2012 eurozone crisis. But there is a reason the European Union has for a decade lurched from one emergency to another, and why every moment of stress — the 2022 loss of Russian gas, the Iran war, France’s overspending — threatens to push it over the brink. It has consistently failed in good times to prepare for the bad.
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