Before Brexit<\/a>, there was Grexit. In 2009 Greece<\/a> admitted that its budget deficit was more than four times the limit imposed by the EU, and its lenders began to fear that the country, unable to service its debt, would have to exit the euro and reinstate the drachma.<\/p>\n Credit ratings agencies swooned, lenders panicked and the country\u2019s bond yields \u2013 and therefore the cost for it to borrow money \u2013 climbed precipitously. By the time the crisis was over in the mid-2010s, the fears\u00a0had spread<\/a>\u00a0to the so-called PIIGS countries: Portugal, Italy<\/a>, Ireland, Greece and Spain (and Cyprus). All had taken bailouts to keep up their debt repayments except Italy, which only narrowly avoided having to do so.<\/p>\n This week the spectre of that crisis returned, with yields on Italian ten-year debt climbing above 4 per cent for the first time since 2013. The country\u2019s lenders have become increasingly nervous that central banks\u2019 decisions to begin raising interest rates, to combat inflation<\/a>, will hinder Italy\u2019s ability to repay its debt. They are right to be worried \u2013 like those of other countries, Italy\u2019s debt levels climbed sharply during the pandemic as it borrowed to shore up its economy during successive lockdowns, with debt\u00a0hitting\u00a0150 per cent of GDP in 2021. Unlike in other countries, however, Italy\u2019s debt-to-GDP ratio was already high before the pandemic; in 2019 borrowing was at 134 per cent of GDP, against the UK\u2019s\u00a082.7\u00a0per cent and\u00a0Germany\u2019s\u00a0downright prudent 58.9 per cent. <\/p>\n That divide has caused rifts among the European Central Bank\u2019s rate-setters. In 2019 minutes of ECB meetings began to show a geographical split, with rate-setters in northern Europe supporting \u201ctighter\u201d monetary policy, while others wanted a more wary approach. It is very difficult to create monetary policy that suits Europe\u2019s quite different economies. In Italy, for example, higher prices make GDP appear higher, which helps to bring down the country\u2019s debt-to-GDP ratio. In Germany<\/a>, however, a range of factors \u2013 from a high rate of personal savings to the cultural memory of hyperinflation in the 1920s \u2013 make inflation politically toxic. <\/p>\n [See also: Why China\u2019s Evergrande debt crisis is the tip of an iceberg<\/a>]<\/em><\/strong><\/p>\n![\"\"](\"https:\/\/www.newstatesman.com\/wp-content\/uploads\/sites\/2\/2022\/06\/GettyImages-480261582-1038x778.jpg\")