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Spotlight: European 10-year Government bond yields

The above chart is a compilation of monthly 10 year bond yields as measured by the European Central Bank. The time in the chart covers dates from the Maastricht treaty in 1993 (which set the Euro in motion) to the present.

From 1993 to the creation of the Euro in 1999, bond yields for European Union members dropped rapidly. Greek bond yields fell from over 20% to 7% over this period.

This harmonisation of interest rates at a stable 4-6% allowed for the low-cost accumulation of large state debt, sowing the seeds of the current crisis. The Lehman Brothers collapse in late 2008 was one of the triggers for the subsequent financial crisis, leading to recession and the current Euro area chaos.

In a reversion to the past, Greek & Portuguese bond yields are now at or above the high levels registered in 1993. Meanwhile, Spain and Italy stand on the brink of disaster with rates rising close to levels believed to be unsustainable in the long run.
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