Old fault lines are threatening to rock the Eurozone
After years in which central-bank backstops encouraged Eurozone investors to look the other way, the bond market has finally started to notice.
Old fault lines are resurfacing within the Eurozone, threatening its stability, reports Helen Thomas. After years of central-bank support, the bond market has started to take notice, causing political risk to rise. France, now the weakest link, shows the widening gap between its 10-year government bonds and those of Germany. This could trigger a self-reinforcing negative cycle.
France is planning to issue a record €340bn in medium and long-term bonds next year, while Germany's debt could exceed its record planned for 2026. Both nations have right-wing parties gaining political traction. Spain faces an early election, potentially leading to a right-wing coalition government. The core countries of the Eurozone are now raising questions about the entire European project.
France, though economically strong, may not be too big to fail. The European Central Bank (ECB) created the Transmission Protection Instrument (TPI) to ensure monetary policy is evenly distributed, but its usage remains ambiguous.
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