The spectre of market contagion is haunting Europe

A SPECTRE is haunting Europe – the threat of contagion. France’s fiscal failures are the source and now even countries that were supposedly improving their finances are in danger.

Italy, for one, has managed to cut its fiscal deficit, but its macroeconomic recovery is very sensitive to rising yields on its sovereign debt – and hence its borrowing costs.

Years of fiscal mismanagement will cause its debt to hit 139 per cent of gross domestic product this year.