The European Union (EU) is not only a single market but also an economic and monetary union. Most EU members have a common currency – the euro – which entails a supranational monetary policy. The European Central Bank (ECB) manages the euro together with Euro Area central banks.
This automatically updated document provides a real-time overview of
several indicators that are central to economic and monetary policy in
the EU. All data comes from the ECB API and Eurostat.
The document is current as of 2 October 2024.
Government borrowing is normally carried out through bond sales. Bonds are financial instruments that entitle the buyer (investor) to an interest rate (coupon rate) and the return of the principal on expiry (maturity date) in exchange for lending the government money at the outset. Like other securities, bonds are traded on secondary markets and their value and yields are therefore subject to fluctuation.
Typically, lending money for longer periods of time is associated with higher interest rates. When shorter-term yields overtake longer-term yields, we speak of an inverted yield curve. Yield curve inversion is historically predictive of recessions.
As most government borrowing in the EU takes place at the national
level, bond yields vary not only over time but also systematically by
country. At the moment, yields are highest on bonds issued by
Romania. Last month they traded at a yield of
6.42%. In contrast, Sweden’s bonds had the
lowest yield at 1.93%.
Bond yields are indicative of the cost of government borrowing and as
such play a major role in debates about the benefits of adopting the
euro as a currency. Over the last year, 10-year bonds in the Euro Area
had an average yield of 3.07%, while EU members that do not
use the euro averaged a yield of 4.52%. This simplistic
comparison is confounded by the uneven composition of the two groups in
terms of macroeconomic stability, but it can be instructive to compare
relatively similar countries in different regions (e.g. Czechia and
Slovakia or Finland and Sweden).
The ECB’s primary mandate is price stability. Its long-term inflation target is 2% (year-on-year).
In times of rising inflation, the ECB’s main countervailing instrument is increasing key interest rates.
Cite this document as Michal Ovádek, ‘Borrowing and Yields in the European Union’, available at https://michalovadek.github.io/eufinance/, accessed on 2 October 2024.