why the ten-year borrowing rate is soaring in the euro zone

The reaction of investors was quick after the victory of the far-right party in the general elections in Italy: the interest rates of several countries in the euro zone climbed to levels not seen for ten years. This is particularly the case for the ten-year borrowing rate used by countries to repay their sovereign debts. When there is a risk, the lenders – the States which finally buy our debt (for example the Japanese through their pension funds) – protect themselves by lending us more expensive money. This time, the shock wave is general in the euro zone.

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The sharp rise in the ten-year rate that we have been witnessing since Monday, September 26 is directly linked to the prospect of the far right coming to power in Rome. The big winner of the Italian legislative elections, Giorgia Meloni, wanted to reassure investors during her election campaign, but they fear that the future government will not keep its commitments vis-à-vis Brussels in terms of reforms decided by the previous team of Mario Draghi. And then Italy is added to a series of tensions in Europe: the war in Ukraine, the monetary tightening of central banks to fight against inflation, etc.

Problem: this rate hike comes as the French government presents its 2023 budget. This chance timing does not help the Ministry of Economy and Finance, which intends to raise 270 billion euros on the markets next year, a record, with ten-year rates in particular. After the blessed period of negative rates, the State borrowed on average at 1.18% since the beginning of the year. We are now at 2.7%, unheard of since 2012), and the progression is not over. Germany is a little below but is also affected.

The “signature” of France, that is to say the confidence that investors have in our country, remains good but, obviously, we are overtaken by a general context of tension. In any case, the debt burden could amount to billions of euros. the equivalent of the National Education budget planned for next year.

source site-29