The Financial Times reported a significant rise in borrowing costs across the eurozone, reaching their highest levels in years, as investors grow increasingly concerned about the financial impact of tensions linked to the Iran war on European economies.
According to the report, yields on 10-year Italian government bonds climbed to 4.14% on Friday, marking their highest level since 2024. This increase is driven by market fears of renewed inflationary pressures fueled by rising oil and gas prices.
Similarly, government bond yields in France—the eurozone’s second-largest economy after Germany—rose to 3.9%, the highest since 2009. Spanish bond yields also increased, reaching 3.7%, reflecting a broader tightening of financial conditions across the region.
These developments have strengthened expectations that the European Central Bank will raise interest rates three times خلال the current year, as it attempts to curb inflation driven by the energy price shock. This surge in energy costs is not only straining household budgets but also increasing transportation and production costs for businesses.
Tomasz Wieladek, Chief European Economist at T. Rowe Price, noted that investors are beginning to recognize a shift toward a challenging economic environment characterized by low growth, high inflation, and increased government spending.
Jean-François Robin, Head of Research at Natixis CIB, added that markets are anticipating a deterioration in public finances across eurozone countries, as governments expand spending to shield households and businesses from rising energy costs.
In response, Italy has temporarily reduced indirect fuel taxes by 20%, a measure expected to cost the treasury approximately €417 million until April 7. Meanwhile, Prime Minister Giorgia Meloni visited Algeria to strengthen Italy’s gas supply security, with Algerian gas accounting for around 35% of the country’s imports.
In Spain, parliament approved a €5 billion tax relief package proposed by Prime Minister Pedro Sánchez. The measures include cutting value-added tax on electricity, natural gas, and fuel from 21% to 10%.
These steps come within a broader European effort, as countries including the United Kingdom and Norway have collectively allocated €651 billion to protect consumers from rising energy costs since the outbreak of the Russia-Ukraine war, according to estimates by the Bruegel, a Brussels-based economic research center.
