The eurozone is at risk of a financial meltdown on the identical scale as the disaster it suffered a decade in the past amid surging inflation and aggressive rate of interest rises worldwide, City traders have warned.
Bond consultants predicted that the European Central Bank may don’t have any selection however to observe the Bank of England and step in to stop market catastrophe as strains inside the bloc’s financial system threaten to hit debt disaster ranges inside weeks.
Analysts say the eurozone is at risk from the identical chaos that struck UK markets this week, quickly sending the pound to a record low and sparking a surge in borrowing prices as swathes of mortgages had been pulled by lenders. Investors concern the eurozone might be subsequent amid early indicators of constructing bother.
Stresses inside the area’s financial system have already reached ranges final seen a decade in the past through the eurozone debt disaster and will quickly attain the 2011 peak as merchants intently monitor the area.
An ECB indicator of stress inside the eurozone’s financial system – which seems to be at strains in bond, inventory and cash markets – has jumped from under 0.1 at the beginning of the yr to virtually 0.5 presently, in response to Saxo Bank. In the eurozone debt disaster, the index exceeded 0.6.
“If it continues increasing, it could reach in a matter of weeks levels of 2011 – at the peak of the European sovereign debt crisis,” stated Christopher Dembik, head of macroeconomic analysis at Saxo Bank, calling the contagion from the UK “noticeable”.
“Tension is increasing in global credit markets, especially in the eurozone,” he stated.
“We are now in a situation where the markets could easily break. We cannot exclude that other central banks will step in, following the examples of the Bank of England, if financial conditions continue to deteriorate.”
The essential supply of pressure within the UK has been within the gilt market where bond yields have rocketed and the Bank of England was compelled to intervene.