The vice-president of the ECB warned today of the risk of a new debt crisis in the eurozone, in a context of high interest rates and increasing budget deficits.
“Further increased funding costs and less prudent fiscal policies could raise concerns about the sustainability of government debt, particularly in (eurozone) countries where debt levels are already high,” warned Luis de Guidos, vice-president of the ECB, in a speech he delivered in Frankfurt.
Today the country causing the most concern for its high public debt is Italy.
However, during the current period, the “spreads” in the government bond markets – the difference in yield between the benchmark German bond and those of the other eurozone countries – “remain limited”, reassured the central banker.
Indeed many governments have achieved “cheap financing for longer periods during the period of low interest rates”.
But the ECB’s interest rates are at their highest level today, chief among them at 4%, to rein in the excessively high inflation seen following the rise in energy prices.
De Guidos said today that the ECB would keep interest rates high “for a long time” to “make a significant contribution” to achieving the 2% inflation target.
At the same time, according to newsit, fiscal policy in the eurozone should aim to make the economy “more productive and gradually reduce the high public debt”, he underlined.
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