Slovakia is becoming a debtor with the highest risk in the eurozone. The yield of 10-year Slovak bonds surpassed the yield of Italian bonds; Italy is currently the largest debtor in the eurozone.
Additionally, of all the eurozone members, Slovakia’s risk surcharge, which creates additional financing costs for the state’s debt, has increased the most.
The risk surcharge is calculated as the difference to the interest rates of German bonds, which are considered a safe haven for investors and are thus the lowest in the entire eurozone.
The higher interest rate and risk surcharge drain more money from the strained state budget. Combined with the growing debt, this represents a serious problem for Slovakia.
A higher risk surcharge also signals what investors think of Slovakia. Since they set higher interest for the purchase of the country’s bonds – used to finance the running of the state – they also assume higher risks and have lower confidence in Slovakia’s economy.
Compared to German bonds, Slovakia’s risk surcharge remained at the level of around 0.4% until February 2022 and was identical to Austria’s.
Slovak and Austrian 10-year bonds were sold with an interest rate of around 0.33%, with both countries among those with the most favourable financing on the market.
The situation changed after the war in Ukraine started. Interest rates began to rise across the eurozone, but in the case of Slovakia, the rise was above average. The gap between Slovak and German bonds increased to 1.3%.
The surcharge is three times higher than it was before the war. Compared to Austria, the difference is enormous. While Slovakia’s interest rate on its debt is 1.265%, in the case of Austria it is not even 0.5%. (The Slovak Spectator)
