Analysts say member states’ increased debt issuance, coupled with less bond-buying from the central bank, could revive concerns over whether the high debt levels of some countries are sustainable and spark fears of a repeat of the region’s 2012 sovereign debt crisis.
Ludovic Subran, chief economist at the German insurer Allianz, warned about a repeat of tensions that flared in 2012. “We could see another test of European solidarity, with very little growth prospects, high debt and rising interest rates,” he said. “There is some degree of complacency,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management. “We may be just one shock away from a sharp rise in bond yields.”
Germany’s central bank boss Joachim Nagel has called for an early and aggressive stop to reinvestments in the first quarter, but others urge caution and the slowdown is expected to begin only in the second quarter of 2023.The US Federal Reserve already started a runoff of its bond portfolio in June. The Bank of England has gone further by actively selling bonds before they mature – something the ECB is not expected to do for several years.