Rising Eurozone bond spread no cause for concern: Germany

Germany’s finance minister, Christian Lindner, played down concerns about the increasing spread in borrowing costs between eurozone governments on Thursday.

“We’re witnessing some rising spreads amongst the member states. But there is no need for any concern in the long-term perspective,” he said.

“Our unity and our institutions make me confident that we could overcome any critical situation.”

The costs that eurozone governments pay to borrow have jumped in anticipation of the first interest rate hike by the European Central Bank in a decade, reviving memories of the recent debt crisis.

The surge in yields — or interest — that governments must pay to investors who buy sovereign bonds prompted the ECB to hold an emergency meeting on Wednesday.

In addition to rising yields, Europe has witnessed an increase in “spreads”, the difference in the interest paid on bonds issued by stronger and weaker borrowers, for example Germany and Italy.

At the end of the meeting, the bank announced that a new “anti-fragmentation” instrument would be designed to counter the divergence between borrowing costs within the single currency bloc.

The growing gap between German and Italian yields, which widened to 2.5 percentage points this week, has raised the spectre of a repeat of the eurozone’s 2011-2012 debt crisis.

But Lindner, arriving Thursday at a Luxembourg meeting of eurozone finance ministers, attempted to calm nerves.

“The eurozone is stable, the monetary union has a robust character,” he said. “We’re considering measures to fight inflation fostering growth and to safeguard the macroeconomic stability.”

He nevertheless cautioned on the need for member states to work together to counter the risk of inflation pushing the bloc into a renewed debt spiral.

“We all have to return to sound public finances. We have to reduce our deficits. We need a reliable path towards debt reduction in all member states, including Germany,” he said.

“There is no reason for anyone to get nervous just because individual risk premiums, spreads, are slightly higher than they were a few months ago,” he insisted.