2023-11-14 19:42:53
A senior European Central Bank official warned on Monday of the risk of a new debt crisis in the euro zone, in a context of high rates and widening budget deficits.
“Higher financing costs and less prudent fiscal policies might reignite concerns regarding sovereign debt sustainability, particularly in countries where debt levels are already high“, warned Luis de Guindos, vice-president of the ECB, in a speech in Frankfurt.
Between 2010 and 2012, Europe faced a debt crisis that started in Greece, which was overindebted and unable to refinance itself on the markets, before spreading to other countries. The episode had raised fears of a risk of implosion of the euro zone. Today, it is especially Italy, led by the head of government Giorgia Meloni, which is worrying given its enormous public debt.
In the current period, however, the “spreads“on the government bond markets – yield differences between the German bond, which is the benchmark, and those of other countries in the euro zone – are”remained contained“, certainly reassured the central banker. Many governments have indeed obtained “cheap financing on longer maturities during the period of low interest rates“.
However, the ECB’s key rates are today at their highest, with the main rate at 4%, to curb excessively high inflation, in the wake of the surge in energy prices. Mr. de Guindos reaffirmed on Monday that the ECB will maintain its high rates “for a long enough time” so that “contribute substantially” to achieve a target of around 2% inflation.
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