Is the eurozone heading for another 2010-style sovereign debt crisis? Today comes the news that inflation in the eurozone hit 8.9 per cent in the year to July. Although it is a record high, it is not as quite as towering as inflation in Britain – at 9.4 per cent. However, what it does do is expose the vulnerability of the eurozone – and how Italian public debt threatens to undermine it. This week, the yield on Italian ten-year government bonds rose to 3.5 per cent as investors began to wonder again if the country can honour its debts. Granted, it’s not quite as high at the rates of over 6 per cent which investors were demanding in 2012 – but it’s a sharp rise in recent times. There is another tranche of Italian public debt that is index-linked – around 10 per cent of its total debt – and which will now cost the Italy far more to service.
If Italy cannot afford its debt repayments, its only option is to go to the European Central Bank and beg for help
Italy is not the only country groaning under the burden of extra borrowing during the pandemic: Britain, too, is facing huge debt-servicing costs as a result of high borrowing and soaring inflation.
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