Covid debt: an “explosive” turn could lead to a repeat of the euro zone crisis | United Kingdom | New
Sebastian Becker, a Deutsche Bank expert, believes many countries could become complacent and warned that a repeat of the eurozone crisis could occur if banks were to face financial difficulties.
He told The Telegraph: “Continued reckless debt accumulation can potentially lead to self-reinforcing high debt and high risk premium loops, which become explosive at some point. “
He added: “If sovereigns were to face larger fiscal problems in the future, the ultimate holders of government bonds – that is to a large extent the banks – would also face serious challenges. financial difficulties.
“It could in the worst case lead to a twin bank / sovereign debt crisis.”
The European sovereign debt crisis, better known as the “eurozone crisis”, has been unfolding since late 2009 after several EU member states were unable to repay their public debt.
The crisis has forced third parties, including other eurozone countries and the European Central Bank, to bail them out.
Mr Becker added that despite robust growth, booming labor markets and a falling sovereign interest bill in the years leading up to the pandemic, most governments have not been able to meet balanced budgets.
He further noted that many advanced economies have never achieved a balanced budget on average over the past 30 years.
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Laith Khalaf, financial analyst at brokerage firm AJ Bell, told The Guardian: “The latest trends in consumer spending show that old habits die hard, unless a lockdown is in effect.
“Borrowing is on the rise and savings are falling, as the lifting of social restrictions has encouraged consumers to pull out their wallets.
“After a long period of hibernation, it is only natural for consumers to take some advantage of the old normalcy, and many have amassed a large war crate of savings during the pandemic.”