According to a senior economist, the COVID-19 debt situation could easily turn into another eurozone crisis.
During the pandemic, virtually every country in the world suffered a severe economic blow. The rise in government borrowing and spending has driven up sovereign debt in many countries.
Deutsche Bank expert Sebastian Becker believes that many countries could become complacent and warned that a recovery from the eurozone crisis could occur if banks face financial difficulties.
He told The Telegraph:
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Since the end of 2009, due to the European sovereign debt crisis, more commonly known as the ‘Eurozone crisis’, a number of EU Member States have been unable to pay off their public debt.
The situation forced third parties, including other European countries and the European Central Bank, to bailout.
Mr Becker highlighted that despite robust growth, booming labour markets and a falling sovereign interest bill during the pre-pandemic years, most Governments have not been able to achieve balanced budgets.
He further noted that many advanced economies have never achieved a balanced budget on average for the past 30 years.
Mr Becker’s comments follow on from a fall in loan interest rates in the UK.
In May, households across the UK increased their borrowing for the first time in eight months.
Experts believe the rise in household borrowing has been exacerbated by those who have suffered loss of income during the pandemic.
It is estimated that around 6.3 million households have experienced a drop in income and have been forced to borrow.
Laith Khalaf, a financial analyst at the stockbroker AJ Bell told The Guardian: