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A spectre is haunting Europe: the threat of bond-market contagion. France\u2019s fiscal failures are the source, and now even countries that were supposedly improving their finances are in danger.<\/p>\n
Italy, for one, has managed to cut its fiscal deficit, but its macroeconomic recovery is very sensitive to rising yields on its sovereign debt \u2014 and hence its borrowing costs. Years of fiscal mismanagement will cause its debt to hit 139 per cent of gross domestic product this year.<\/p>\n
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The La Defense business district in Paris. A sell-off in\u00a0global debt\u00a0has fuelled a rout that\u2019s hitting harder and faster in France than anyone expected. Bloomberg<\/p>\n
Trouble is brewing beyond the eurozone as well. Romania, going through another bout of political turmoil after failing to install a government on September 30, has yields of about 7.3 per cent.<\/p>\n
We\u2019re still some distance from a repeat of the 2010-2012 eurozone crisis<\/a>. But there is a reason the European Union has for a decade lurched from one emergency to another, and why every moment of stress \u2014 the 2022 loss of Russian gas, the Iran war, France\u2019s overspending \u2014 threatens to push it over the brink. It has consistently failed in good times to prepare for the bad.<\/p>\n Related Article Look beyond France at some of the bloc\u2019s apparent successes. When you dig deeper, irresponsibility is rife.<\/p>\n Italy is actually running a budget surplus and Giorgia Meloni\u2019s government<\/a> has stayed in power for nearly four years, giving the notoriously unstable republic an unprecedented spell of stability. But her government is still demanding that EU rules are bent to let it spend more.<\/p>\n Countries that rack up half-decent numbers reckon that gives them licence to be irresponsible for the next few years, like dieters who think a 10-minute walk allows them to wolf down a bucket of fries.<\/p>\n Consider the Czech Republic. Its populist billionaire leader has announced a budget that would massively increase the deficit to 3.5 per cent of gross domestic product from 2.1 per cent in 2025. Naturally, its bond yields have reached levels not seen since 2022.<\/p>\n Spain is even more disheartening. Prime Minister Pedro S\u00e1nchez has called fresh elections, although he\u2019s trailing badly in the polls.<\/p>\n He has run three successive minority governments now, and perhaps hopes he can pull off an unlikely fourth win. The country is blessed by culturally compatible Spanish-speaking migrants, a climate that\u2019s perfect for renewable energy and favourable growth numbers as a result. But there\u2019s been no real fiscal consolidation, even though the headline deficit has fallen.<\/p>\n The OECD points out that Spain\u2019s structural deficit \u2013 what the deficit would be if the country grew steadily at its highest sustainable rate \u2013 isn\u2019t declining. There\u2019s nothing in the tank for when the engine begins to sputter.<\/p>\n Spain typifies Europe\u2019s problem. In times of crisis, countries look to the rest of the EU for help. In happier times they bank nothing, for themselves or the bloc.<\/p>\n Instead of being a source of strength in a struggling continent, Spain has sought to leave to others the tough job of dealing with markets, suggesting a European-level borrowing facility that could raise money on its behalf.<\/p>\n Related Article![\"The](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/10\/29745843d99e5b4a1ac32891b4ccd4e0fa608ffe.jpeg\")
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Protesters in Barcelona set bins on fire during clashes with police following a demonstration over Spain\u2019s housing crisis, hours after Prime Minister Pedro S\u00e1nchez announced an early general election.AP <\/p>\n![\"A](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/10\/d5d0739f1c032894bcc964a8ff47b3f4756dfdaa.jpeg\")
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