Up, up and away: European commercial mid to long-term government borrowing is likely to hit a historic €1,446bn in 2010, rating agency Standard & Poor’s said in a note on Thursday.
That’s a €52bn jump from 2009’s peak, according to the rating agency’s European sovereign issuance survey.
From S&P’s credit analyst Kai Stukenbrock:
“In our view, this record level of European sovereign borrowing will be the result of central governments’ sustained high net borrowing requirements. Government revenues are still depressed by only gradually recovering economies, while expenditure remains elevated by high unemployment and remaining fiscal stimulus measures, we observe.”
More worrying were S&P’s remarks the implications of a decline in demand for government debt:
Because central banks are set to phase out liquidity support to the financial sector, as well as quantitative easing measures over 2010, the ensuing drop in demand for government debt could lead to rising benchmark yields.
And:
The resulting fiscal pressure from a sustained increase in financing cost could be significant in our view…We estimate that a sustained 300 basis points shift in the yield curve would by 2015 amount to extra annual interest payments of 3.9% of 2010 GDP for Greece, 2.6% for Portugal, and 2.5% for Italy and the U.K.
But the pattern of sovereign borrowing is not necessarily consistent, S&P said. For instance, the UK is expected to borrow an estimated €38bn less than in 2009, the rating agency said. On the other hand S&P estimates Germany’s gross borrowing will be higher by €41bn, while the French will increase that measure by €26bn.
The rating agency anticipates a deterioration in the public finances of both these countries in 2010.
Watch out for other heavy hitters, too, like Spain, Russia, the Netherlands and Turkey. They’re also due for some very big increases in medium to long-term borrowing: €21bn, €20bn, €13bn and €19bn respectively, to be exact.
All of which makes Mohamed El-Erian’s warning about the sovereign debt explosion particularly timely. As El-Erian put it in an FT op-ed:
Today, we should all be paying attention to a new theme: the simultaneous and significant deterioration in the public finances of many advanced economies. At present this is being viewed primarily – and excessively – through the narrow prism of Greece. Down the road, it will be recognised for what it is: a significant regime shift in advanced economies with consequential and long-lasting effects.
Consider yourself warned, and not for the first time…
Related links:
Sovereign debt crises 2010, an RBS sapling – FT Alphaville
On the not-unlimited investor appetite for government bonds – FT Alphaville
There’s always Schadenfreude, Greece - FT Alphaville
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