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A bizarre thing? Ranking 1st by GDP growth, last within the EU by loan costs: 5% threshold exceeded in July
de Marin Pana , 3.9.2018
Romania is the country that borrows money at the highest costs among all EU states, and the 5% yield threshold for government bonds was exceeded in July.
With 5.05%, we are about four times higher than the European average of 1.31%, or five times the Eurozone average (1.04%).
Twelve months ago, when data from Eurostat showed that there were no significant changes in the EU and Eurozone averages, we were at 3.86%, which also indicates that we had the highest deterioration of this indicator among all member countries, except for the Czech Republic, which is on an entirely different level (from 0.83% it went up to 2.11%).
Speed of cost increase: a comparison with EU countries
In fact, at the end of last year, we intersected with Greece, as we were going upward with the interest paid on loans and they were going downward, and afterwards took their position as the most risky placement option for capital markets, despite the record economic growth of 6.9% at the European level, which is a huge bizarre thing.
It is less important that these figures reflecting the perception of international markets are deserved or not.
What matters is the cost we shall all have to bear, obviously higher with the passage of time. Although the level of public debt (ironically) has fallen to only 35% of GDP, the interest rate at which we shall be able to “roll it over” is essential.
- Evolution of government bond yield
For reference, we also mention some “up-to-date” returns for bonds issued by other countries such as Bulgaria (0.92%), Croatia (2.26%, down from 2.87% 12 months ago), Poland (3.17%, from 3.33% 12 months ago) and Hungary (3.39%). Not to mention Germany (0.28%) or France (0.67%), while Italy (2.64%), Portugal (1.76%) and Spain (1.33%) are closer to us, all with a much higher public debt than ours.
Paradoxically, although we have enjoyed a relatively high economic growth, it seems that others (caring for their placements) do not really believe that we know what to do with it in terms of public budget management. Basically, they are waiting for us to borrow and do that only if we offer much higher returns than practiced at the regional level.
For now, it is both complicated and premature to make a calculation as to how much the perception of an unsustainable public expenditure is costing us. But when the line will be drawn for the additional costs generated this way in a period when we have a debt of about EUR 70 billion, money that nobody gave us for nothing but to collect the interest, we might get a headache.
5.05% compared to 3.86% a year ago is not a simple change in figures but a move from the area somehow acceptable to an area with a warning fired when the sky is still blue but others, specialized in macroeconomic stability, see it increasingly cloudy. The reason why they take the risk of lending only for exaggerated rates.
Nobody tells us to reach that miraculous 0.28% applied for Germany, but neither to make a clear difference compared the countries with a similar floating exchange regime, such as Poland or Hungary.
When things are mixed, everyone sees what he wants and emphasizes what they like. Simply put, though, about one – one and a half percentage point represents the pure cost of an inadequate public money management.