August 5, 2021

Europe is emerging from the era of negative interest rates

The phenomenon is slow and gradual, but it is beginning to mark a profound economic shift. After having experienced eighteen months in almost continuously negative territory, the interest rates at which European states borrow have returned to above zero. That of French ten-year bonds, which had reached a low point of -0.38% in mid-December 2020, is now close to 0.2%. The Netherlands went from -0.5% to 0%. Italy also gained half a point, to 0.9%. Only Germany, judged by the markets to be the least risky country, remains in the negative zone, at -0.2%. The movement follows that of the United States, much more advanced, where the ten-year borrowing rate took 1.1 points in almost a year, rising to 1.6%.

This development is not without risk in the postpandemic context, the States having become heavily indebted. Between 2019 and 2020, French public debt rose from 97% of gross domestic product (GDP) to 115.7%, a historic leap. That of the euro zone increased from 85% to 102%. In this context, the slightest movement in interest rates becomes very sensitive for debt sustainability. There is also the risk of a financial bubble bursting: low interest rates have for years caused capital flight to the riskiest markets, such as the stock markets, which yield more; the reversal of the situation could suddenly deflate them.

  • Why are the rates going up?

“The anomaly was the negative rates, recalls François Ecalle, president of the public finance analysis association Fipeco. In itself, their increase is a pretty good sign. This means that investors are anticipating a little more inflation and growth. “ Eric Dor, director of economic studies at Iéseg, a business school, shares the same point of view: “If rates remained negative, it would be a sign of a slump in the economy. “

Read the analysis: Global economy threatened with overdose of free money

The rise in rates reflects the gradual recovery of economies as populations are vaccinated and health restrictions are lifted. At the same time, inflation is making a comeback. In the euro zone, the level remains reasonable, reaching 1.6%, over twelve months, in April. In the United States, the alarm is starting to sound: the rise in prices has reached 4.2% over one year.

It comes from the conjunction of two factors: the sudden increase in demand, with deconfinement, and production bottlenecks, with global supply chains disrupted by the pandemic, causing shortages: from wood to semiconductors. , through bicycles. Growth and return inflation: rates had to increase.

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