Bond Yeilds will be our downfall...

With consumer spending weak, and demands upon social welfare budgets growing (rising unemployment etc...) most governments need to borrow money at the moment to simply be able to keep paying their bills.  Today in the Autumn statement it has been announced that the UK will have to borrow significantly more than previously thought - something like £127bn this year...  Actually that isn't too problematic for us.  As the markets start to think that the UK is a fairly save investment the rate of interest that we need to pay on this borrowing is pretty low - perceived risk acting directly on the return (interest rate) that borrowers need to pay.  The UK needs to pay just about 2.29% on new debt that it issues.  For some context I pay about 3.5% on my mortgage, so quite reasonably the banks think that I am a riskier investment than the UK government is...

Now for the interesting bit.  Italy has this morning needed to borrow £7.5bn in order to keep paying it's bills.  It needed to pay a record breaking interest rate of 7.89%.  This level of interest is simply unaffordable.  And this is the crux of the current Eurozone crisis, and if it continues Europe will go into recession & given that it holds our biggest trading partners we will not be able to avoid following their path.  So what should be done - ummmm no one really seems to have a satisfactory answer, each possible path is littered with huge pitfalls and more complex than can be explained here, the reality is however that a no action is probably the risky of all possible approaches!  A grand solution is needed and before this is resolved all George Osborne can do is tinker at the edges, he is every bit as much a passenger as we are.