Sovereign debt crisis – is this time different?

Anxiety surrounding French government bonds remains high

French government bonds have been on a roller-coaster ride. Last Friday, the yield spread relative to 10-year German government bonds had reached nearly 160 basis points, only to fall since then to 140 basis points – the latter move also supported by Marine Le Pen, who has promised a significant reduction in France’s high budget deficit should she win the election. In any case, anxiety surrounding France’s high and rising public debt, along with fears of contagion to other highly indebted countries, is likely to persist in the coming months. We therefore analyze the parallels to the sovereign debt crisis of 15 years ago. But we also highlight what is better today than it was back then.

What reminds us of the sovereign debt crisis back then, and what is even worse today?

Let’s start with the negative aspects—that is, what today reminds us of the sovereign debt crisis from 15 years ago.

• High public debt-to-GDP ratio: The most striking parallel to that time is the fact that public debt remains high today. On average across the eurozone, it currently stands at around 90% of GDP. The public debt-to-GDP ratio thus significantly exceeds the Maastricht Treaty’s upper limit (60%). Furthermore, it is higher than in 2009 (80%), the year before the outbreak of the sovereign debt crisis at that time. With the exception of Germany, this applies to all other major eurozone countries –namely France, Italy, and Spain

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