Lending from debt-ridden countries such as Italy, Greece and Spain has risen in the decade since the region’s public debt crisis – in part due to the depletion of public finances by the coronavirus pandemic. Markets were more willing to finance these large piles of debt, while borrowing costs were extremely low and the European Central Bank continued its huge bond-buying program. But the ECB’s plans to withdraw such incentives – by ending asset markets and raising interest rates by a quarter of a unit scheduled for July – mean that the bonds of these southern European countries are under pressure again. Borrowing costs for Italy and Greece have risen sharply, with Italy’s 10-year yield reaching its highest level since 2014 on Friday – although they remain well below the levels that escalated in 2012. However, the concern for many Investors is that a steady rise could rekindle concerns about how manageable Rome or Athens’s debt is. “I think the situation is worrying but not critical,” said Antoine Bouvet, a senior interest rate analyst at ING. “Sometimes markets can go crazy and lose confidence,” he said, adding that it was a “self-fulfilling prophecy.” He said that if the difference between the Italian and German benchmarks reached 2.5%, then “some alarm bells will ring at the ECB”. The spread rose to about 2.25 percent on Friday. “So far [the widening] “It was relatively neat, but it could lead the ECB into a false sense of security.” In a policy statement this week, the ECB said it planned to raise interest rates by 0.25 percentage points in July and that “if the medium-term inflation outlook persists or deteriorates, a larger increase would be appropriate at the September meeting.” . The bank last raised interest rates in 2011 and the deposit rate is currently minus 0.5 percent. As for fears of fragmentation – the perception that tightening monetary conditions could affect eurozone countries differently – ECB President Christine Lagarde said on Thursday that “if necessary, we will use either existing adapted instruments or new instruments that will be available “. “Obviously we need to ensure that there is no fragmentation that would impede the adequate transmission of monetary policy,” he added. Additional report by Tommy Stubbington
