The vast tax cuts promised by Liz Truss' government, in total opposition to the Bank of England's monetary policy, have caused the Gilt to plummet. The situation in the British bond market, on which the country's pension system is based, forced the BoE to launch an emergency bond-buying program. In all, just over £65 billion, injected at a frantic rate of £5 billion a day for 13 days, will be used to buy back British bonds. At the same time, the pound sterling has fallen sharply, depreciating by almost 25% against the U.S. dollar since the beginning of the year.

In the European Union, the energy crisis shows no signs of abating. On September 27, three unexplained leaks appeared on the Nord Stream gas pipelines, linking Russia to Germany in the Baltic Sea. This is a rare incident, but it occurred surprisingly three times in less than a day. For the Danish Prime Minister, there is no doubt that this is a deliberate act. An idea shared by Ursula von der Leyen, who stated that this "act of sabotage" aimed at the European energy infrastructure "will not remain without consequences. 

Giorgia Meloni, leader of the post-fascist party Fratelli d'Italia, came out on top in the legislative elections and is expected to head the Italian government in the near future. The reaction of the bond markets was relatively weak, although the measures in her economic program are described as "unpayable" by many, including in the ranks of her coalition. This concern is shared by banks and rating agencies, whose reports point to an explosion of deficits if the electoral program is implemented. But investor confidence in Rome's fiscal policy is crucial to the stability of Italian bond yields. Yields are already around 4.6% for 10-year bonds. With a fiscal policy that is too deficit-oriented, and not in line with the rules dictated by the ECB, Italy could lose nearly "191.5 billion euros in loans and subsidies," warned former Prime Minister Silvio Berlusconi. An evaporation that the transalpine finances could do without, since the public debt is already at about 150% of Italian GDP. This scenario is reminiscent of the situation in Greece, where 10-year bond rates are flirting with 5% and inflation has reached 11.4% year-on-year.

Autumn-Winter 2022 looks complicated in Europe...

Drawing by Amandine Victor: Tough quarter for Europe