Pandemic won’t cause euro debt crisis, but a North-South divide

Eurozone government debt will surge this year on the coronavirus pandemic, but while another debt crisis is unlikely, large differences in indebtedness as countries emerge from the downturn could seriously test their unity.

The International Monetary Fund expects debt in the 19 countries sharing the euro to jump by more than 13 percent of GDP to 97 percent this year as Europe-wide lockdowns cause an unprecedented 7.5 percent eurozone recession. But despite massive expected borrowing, the effect on yields has so far been small.

Interest on bonds of already highly indebted Italy, Spain, Greece or Portugal is up by only 40-50 bps - kept in check by massive European Central Bank bond buying.

"As the ECB is literally cleaning up all the secondary market ... the risk of a sovereign debt crisis is close to zero," Saxo Bank's economist Christopher Dembik said, echoing...