European Commission officials have been cautious about openly commenting on market swings, but one EU insider said the situation was being monitored closely. “We are obviously watching to see how it evolves. We’re not shrugging our shoulders,” he said.
Mujtaba Rahman, managing director Europe at Eurasia Group, said officials and experts feared Ms Truss’s Government would be unable to contain the turmoil.“This is a question about the credibility of the Government: the scale of the tax cuts, that it is unfinanced, it is at cross purposes to the Bank of England’s position, and that there is no full analysis by the Office for Budget Responsibility.”
Despite Brexit, the EU and UK’s financial markets remain closely intertwined. The EU economy is already facing turbulence as the energy crisis has triggered a cost of living crisis, and a recession looms. Eurozone economic confidence slumped to its lowest since the pandemic this month as record inflation and the winter energy crisis cast a shadow over the region.
There are now additional fears that following Italy’s election last weekend, a government led by Georgia Meloni’s post-fascist Brothers of Italy party could exacerbate the country’s 145 per cent debt-to-GDP ratio, creating new Eurozone tensions. However, Carsten Brzeski, chief economist at ING Germany, said the EU sees the UK as a cautionary tale. “There currently is too much Schadenfreude in Europe,” he said. “Europe would be better advised to see the UK experience as a warning that there are clear limits to what fiscal policy can currently do. It’s not so long ago that European countries experienced what the consequences of unsustainable public finances can be.
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