The Fitch credit rating agency and the European Central Bank issued strong warnings today about the weight of European government debt threatening financial markets and economic recovery this year.
Fitch said that on average nearly one fifth of national output would be absorbed by debt costs, but in some countries such as Italy, France and Ireland it would be about one quarter.
The biggest and best borrowers should attract lenders without undue problems but at higher interest rates, Fitch said.
'The increase in the stock of short-term debt is a source of concern to Fitch as it increases market risk faced by governments, notably exposure to interest rate shocks,' the credit rating agency said.
At the ECB in Frankfurt, which is responsible for euro zone monetary policy and interest rates, chief economist Juergen Stark said: 'We are seriously concerned about forecasts of strong rises in government deficits and the indebtedness of countries in the euro zone.'
He warned in a speech that this trend could lead ratings agencies to further downgrade government debt bonds and to further negative reaction in financial markets.
Two weeks ago, another leading ratings agency, Moody's, warned that 2010 would be a difficult year for European government debt ratings.
Fitch estimated that 15 of the 27 countries in the European Union, and Switzerland, would have to borrow the equivalent of 19% of their annual national production this year to financ budget overspending and roll over existing debt.
The warnings came amid concern about cohesion of the euro zone owing to a debt crisis in Greece and strains in other euro zone countries, notably Portugal and Ireland, that analysts say have contributed to a recent fall of the euro.
There is also concern about a sharp worsening of public finances in Britain, a member of the EU but not of the eurozone.
However, Fitch said that in absolute terms, the country with the biggest problem was France, followed by Italy and Germany, the biggest euro zone economy, with Britain some way behind.
