The phenomenon of a sharp rise in the yields of debt securities, of which the situation in the United Kingdom crossing the five-percentage-point barrier is a glaring example, constitutes a warning signal for the entire financial system.
This process, although often associated with short-term geopolitical conflicts, in reality has a structural foundation and is connected with a long-term loss of investor confidence in the budgetary discipline of the largest economies in the world. This change strikes at the foundations of the financial security of states which until now have benefited from extraordinarily cheap forms of borrowing on international markets.
For the past several decades, institutional investors, including entities with such a conservative profile as the Bank of Japan, perceived the bonds of Western European states as a stable instrument for safeguarding capital.
At present this perception is undergoing a violent erosion, and markets are beginning to scrupulously analyse the fiscal errors and structural problems of individual issuers, abandoning the practice of treating Western Europe as a single, safe region.
The example of Italy, whose indebtedness is arousing ever greater concern, and of France, recording leaps in the cost of servicing its debt, shows that the "safe haven" mechanism is ceasing to function.
Even Germany, hitherto a pillar of stability, is experiencing a rise in the yields of its bonds, which, in the context of the creation of off-budget funds, undermines its reputation as a country pursuing a sensible financial policy.
This situation has a direct and critical bearing on the financial plans of the European Union, including on the implementation of the SAFE mechanism, the foundation of which was to be advance payments and joint credit guarantees.
The failure to pay out the expected funds on time, together with the absence of information on the costs of servicing the debt, calls into question the profitability and credibility of the entire undertaking.
Investors are increasingly questioning the sense of placing capital in EU bonds, fearing for the durability of Europe's political construction and its ability to repay obligations under conditions of growing instability.
The mechanism of a self-propelling debt spiral causes states in weaker fiscal condition to force higher rates of return on all issuers in the region, which drastically limits the room for manoeuvre of governments looking for funds for modernisation and armaments.
The long-term perspective points to the necessity of a redefinition of the fiscal policy of the states of the European Union, which must regain credibility in the eyes of the great financial institutions.
The absence of clear alternatives to the previous models of borrowing and the growing political instability in key countries, such as Germany, may lead to a permanent outflow of capital to safer jurisdictions.
Financial markets are approaching announcements of reform with ever greater reserve, reforms which find no confirmation in budgetary discipline. It is precisely this factor that in the coming years will determine the ability of European states to finance their basic functions.
Financial stability has ceased to be a guarantee, becoming a scarce commodity for which governments will have to pay an ever higher political and economic price.
Bond markets are entering a phase of high risk, characterised by a loss of confidence in the fiscal stability of the leading Western economies.
The example of the United Kingdom and the deteriorating indicators of France, Italy and Germany signal the end of the era of trouble-free financing of state needs in this particular form.
For the European Union this means the necessity of revising community financial mechanisms, such as SAFE, and of confronting a new reality in which investment security must be earned through real budgetary discipline and political stability, and not merely thanks to the region's previous renown.
