MNI BRIEF: Yields Leave High Debt EZ States Facing Growth Hit

The cost of government borrowing for highly indebted eurozone nations could rise at more than three times the pace of countries with smaller debt-to-GDP ratios, according to a blog by ECB staff published Wednesday, with negative impacts on growth.

“A 10 percentage point rise in the debt-to-GDP ratio is consistent with a 20 basis points increase in yields – but only for issuers with a relatively low debt stock,” the blog’s authors write.

For highly indebted countries it means an increase of 65 basis points. In other words, piling up more debt can make borrowing for governments more expensive (i). Moreover, higher public debt can discourage private investment, leading to lower growth (g).”