Eurozone stability at risk, new debt crisis looming

Although interest rates are also rising in the Netherlands and Germany, they are rising faster in Greece and Italy. The yield on German 10-year government bonds, Bonds, has risen since the beginning of this year from negative 0.27 percent to positive 1.01 percent. But the ratio in Italy went from 1.19 to 3.15 percent and Greece even from 1.17 to 3.63. This means that the spreads have now expanded to proportions not seen in a long time. These can ensure that southern European countries are no longer considered creditworthy by investors. Harald Beninck, professor of EU economics at Tilburg, says investors are demanding higher risk premiums from countries with high debt.

A new debt crisis would play into the hands of Russian President Putin as it could tear apart the single eurozone. The widening of the spreads coincides with the intention of the European Central Bank to reduce its bond-buying program and raise interest rates. This means that the septum is located far away.

A repeat of the 2012 crisis could no longer be imagined. Then the margins rose to 6 percentage points. Speculators tried to blow up the eurozone for their own benefit. Economists no longer give a cent to the survival of the monetary union.

Whatever you take – whatever it costs

Former European Central Bank President Mario Draghi saved the euro with his “whatever it takes” statement. He promised to use all means to save the euro and set up a support program in which southern European countries would receive billions of euros in loans from Brussels.

My Drag was lucky because inflation was so low that everything could be pulled. Now the situation is more serious. Not only because of high inflation, but also because the European Central Bank already has a lot of debt on its balance sheet. If margins rise above 3 percent, speculators such as hedge funds can sense new opportunities. Ten years later, the debt of the countries of southern Europe increased in relation to GDP. Greece’s public debt now accounts for 193% of GDP, Italy 150%, Portugal 127%, and Spain 118%. Officially, according to EU agreements, this debt should not exceed 60% of GDP.

Too much pain for bond investors

In the event that the euro crisis worsens as a result of the recession, the European Central Bank will still have to provide emergency support to the so-called “zeuro countries”. This is only possible if Italy and Greece implement severe austerity measures, but this could lead to major social unrest there. Otherwise, the EU will have to act as a savior by issuing bond issues on behalf of the eurozone countries together, which essentially means that countries give up their fiscal sovereignty and that a federal Europe becomes a reality.

Germany’s 10-year yield, the benchmark for the eurozone, is now at its highest level since August 2014. Globally, the value of bonds in investment portfolios has already fallen by $8000 billion this year due to higher interest rates. “It’s been a long time since bond investors have been in the same amount of pain from lower prices as they have in recent months. What really stands out is that equity investors have been overtaken by the right and left, says Johannes Muller, macroeconomist at DWS Asset Management. Losses are enormous especially in long-term bonds, such as 30 year bonds.Sometimes they go up to a quarter of the value.Losses in both existing stock and bond portfolios are also great for big investors like pension funds.But they are fortunate because they base their financing ratios on the interest rate. and rises.