“The specter of a debt disaster is returning to the euro zone”

“The specter of a debt disaster is returning to the euro zone”

VSLike an air of deja vu: an disagreeable and anxiety-provoking chant that hadn’t resonated for nearly a decade in our European international locations. In current weeks, the specter of a debt disaster has returned to the euro zone. Worry, with its corollary of phrases recalling the painful reminiscence of the monetary turbulence of 2011-2012. Following the instance of “unfold”, this time period thought of to be the barometer of threat, designating the distinction between German sovereign charges – the reference when it comes to budgetary seriousness – and the charges of one other nation within the euro zone.

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In truth, the unfold between the Italian BTP and the German “Bund” climbed from 0.9 factors in December 2021 to greater than 2.4 factors on June 15. Italy is now borrowing at greater than 3.7% over ten years, in comparison with barely 0.5% in the beginning of 2021. Through the debt disaster, on the finish of 2011, this fee jumped to greater than 7.5%. Ten-year French bonds are buying and selling today round 2.2%, in opposition to… 0% on the finish of 2021.

This bond growth is fueled by galloping inflation – 8.1% in Could within the euro zone – and the financial tightening carried out by the key central banks, in opposition to a backdrop of considerations linked to the conflict in Ukraine and the disruption of the chains of provide. But it surely additionally reveals a tragic actuality: the danger of a fragmentation of the euro zone, ie of a divergence of financing circumstances between the Member States, has not disappeared. It displays the heterogeneity of the economies and the totally different exposures to Russia. Nevertheless, this fragmentation can “deteriorating the transmission of financial coverage”, warns Isabelle Schnabel, member of the chief board of the European Central Financial institution (ECB), in a speech delivered on June 14, in Paris.

Learn additionally: Article reserved for our subscribers Jézabel Couppey-Soubeyran: “With the tightening of its financial coverage, the ECB will not be capable of act as if the absence of fiscal union was not an issue”

Let’s guess that, earlier than lengthy, the dusty rancor blended with inglorious stereotypes will rebound, right here and there, within the nationwide media, as in every interval of monetary tensions: the international locations of the North mock the idleness Mediterraneans, unable to reform quick sufficient; these of the South blame the obtuse frugality of the Nordics. Within the aftermath, the Cassandres prophesying the decline of the financial union, even its explosion ensuing from the need for emancipation of considered one of its members, will little doubt quickly give voice once more, too.

Taboos will fall

Nevertheless, the euro zone is far stronger than ten years in the past. It constructed the banking union; its banks have improved. Through the pandemic, it launched joint loans and an unprecedented restoration plan of 750 billion euros. It’s extra united, rather less entangled in untenable budgetary guidelines. The ECB has realized the lesson of the debt disaster: to stop hypothesis from unleashing on the weak hyperlinks, it’s crucial to speak or act – which is usually synonymous in financial issues – shortly and with out ambiguity. . Its earlier president, Mario Draghi, demonstrated this in July 2012, when he put an finish to the rise in sovereign charges by declaring that he would ” the whole lot that is crucial “ to avoid wasting the euro.

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