Eurozone Faces ‘Sovereign Debt Explosion’

15 Mar

From the UK’s Telegraph:

Europe’s governments are at increasing risk of an interest rate shock this year as the lingering effects of the Great Recession drive debt issuance to record levels and saturate bond markets, according to Standard & Poor’s.

The warning comes as bond giant PIMCO spoke of a “sovereign debt explosion” that has taken the world into uncharted waters and poses a major threat to economic stability. “Our sense is that the importance of the shock to public finances in advanced economies is not yet sufficiently appreciated and understood,” said Mohamed El-Erian, the group’s chief executive.

Mr El-Erian said most analysts are still using “backward-looking models” that fail to grasp the full magnitude of what has taken place in world affairs since the crisis. Some 40pc of the global economy is in countries where governments are running deficits above 10pc of GDP, with no easy way out.

Australia too, is issuing government debt at record levels – $1.6bn last week, another $2.1bn scheduled for this week.

See the Australian Office of Financial Management’s website.

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