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Euro 2.0 crisis? Deutsche Bank strategist warns that debt burden may return to 2011 level if rates rise much further

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It has been ten years since the Greek debt crisis dominated financial news.

While the European Central Bank is preparing to launch a campaign to raise rates – now one official says the opening may take place in June – and if the yield on Italian bonds
TMBMKIT-10Y,
3.084%

now as much as 2 percentage points higher than the yield of German subscribers
TMBMKDE-10Y,
1.086%
,
Deutsche Bank strategist Maximilian Uleer decided to compare the situation in the eurozone with a decade ago.

Relative and absolute levels have increased since 2011. Even with debt easing, Greece’s debt-to-GDP ratio is lower because its economy has shrunk. Only in Germany and Ireland, where companies have moved to take advantage of lower taxes, has their debt-to-GDP ratios declined.

Of course, interest rates are lower. The weighted average coupon has dropped significantly, and the debt repayment period is longer.

Uleer said Spain and Italy are at greatest risk of their interest expenditures relative to GDP catching up to 2011 levels.

“The debt load has decreased and the ECB has the opportunity to raise rates and suspend its buying program. But the ECB’s degrees of freedom are limited. If rates rise sharply over time, we may well face the euro 2.0 crisis, ”Uleer said.

Francois Villeroy de Gallo, head of the Bank of France and a member of the governing board of the European Central Bank, said on Friday that it would be “reasonable” to have interest rates in the positive territory by the end of this year. .

Euro
EURUSD,
+ 0.16%

on Friday rose but fell 7% this year against the dollar.

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