European sovereign bond markets are straining under the weight of rising yields and fiscal pressures. In the UK, long-dated gilt yields have spiked to multi‐decade highs (the 30-year gilt hit 5.72% in early Sept. 2025). Investors note that the UK government now spends over £100 bn a year on interest, and any further sharp rise in yields would squeeze public finances even tighter. Similarly in the euro area, 30-year German Bund yields recently hit their highest level since 2011 and French equivalents since 2009. France’s political turmoil has compounded its fiscal woes. Moody’s downgraded France’s credit to Aa3 in Dec. 2024, warning that the new government faces a “Himalaya” of deficits . As a result, the spread between French and German 10-year bonds – a key risk premium – has widened to multi-year highs around 75–85 basis points. In short, core Europe’s bond markets are pricing in significant risk: yields are climbing, rating agencies are under scrutiny, and foreign investors (historically the dominant buyers of French and British debt) are becoming skittish .
Calls to Mobilize Private Savings
Against this backdrop, some leaders have openly floated the idea of tapping domestic savings. German CDU opposition leader Friedrich Merz recently urged that the state should “mobilise” household savings for public investment. Merz noted Germany’s citizens hold about €2.8 trillion in bank deposits, and speculated that even 10% of that could fund a large infrastructure program if given a reasonable interest rate. In other words, instead of issuing debt to foreigners at rising yields, governments could turn to national savers. Indeed, EU policymakers are discussing new ways to channel private capital into strategic projects. An EU Parliament report explicitly calls for “mobilising private capital” to boost defense spending and other priorities , and has even floated the creation of a “Rearmament Bank” to pool Europe’s vast savings for military production. While framed as voluntary investment schemes, such ideas signal that tapping household or pension fund savings is very much on the table as bond markets tighten.
These calls echo faint murmurs from officials and institutions. European Central Bank sources note that as the ECB withdraws from bond-buying, “the private sector needs to increasingly absorb new sovereign debt”. In other words, if overseas buyers balk, domestic banks and funds must step in – often by buying government bonds. While some analysts insist that markets can handle this with only slightly higher yields , others worry that prolonged fiscal stress will force a more active role. Even Bundesbank President Joachim Nagel has warned that “extraordinary times require extraordinary measures”, implicitly endorsing unconventional financing – yet he cautioned that “greater scope for borrowing alone will not remedy Germany’s weak growth”. In short, senior policymakers admit that tapping new sources – including private savings – may be necessary, but they also stress that borrowing (and how to pay for it) remains a critical challenge.
Historical Precedents: When States Seize Citizen Wealth
History offers vivid precedents for what can happen when governments desperate for cash turn to the public. During both World Wars, governments ran massive bond drives. In World War I, for example, German citizens were repeatedly urged (in speeches and posters) to buy war bonds as a “sacred duty” to finance the Fatherland – only to have those bonds later rendered worthless by postwar hyperinflation. (Germany’s hyperinflation was, in part, a hidden default on those very bonds.) After the First World War, this episode left Germans determined never to finance another war by lending to the state.
Yet by World War II, the Nazi regime found a way around popular reluctance. Instead of asking voluntarily for loans, Hitler’s government began a policy of “silent war financing”: it essentially forced the public to finance the war without their knowledge. The state purged local savings-bank boards of anyone “unreliable”, then ordered banks (the Sparkassen) to use depositors’ funds to buy unlimited Reich government bonds at negligible return. Citizens saw no difference in their bank passbooks, but their cash was secretly siphoned into the war machine. As one historian notes, this was a “financial equivalent of a bodysnatcher” – their wealth was stolen while an IOU (the bond entry) was left in its place. After the war it became clear that ordinary Germans had unwittingly underwritten Nazi rearmament.
More recently, modern crises have produced their own forced-savings nightmares. In 2013, Cyprus faced a banking collapse and imposed a bailout deal that explicitly made depositors pay. Under the terms agreed by the EU and IMF, uninsured depositors (accounts over €100,000) in Cypriot banks saw up to 47.5% of their savings converted into bank equity or government debt overnight . In effect, citizens lost much of their money to recapitalize failed banks. As one Cypriot lawmaker bitterly put it, parliament had a “gun to [its] head” to approve an “enslavement” of savers.
Other debt crises in the developing world offer stark examples. In Argentina’s 2001–02 meltdown, the government famously froze bank accounts (the “corralito”), capped ATM withdrawals and converted billions in deposits into long-term bonds. Argentines rioted as they found their savings trapped in banks; many still recall being “blocked from withdrawing their money” and forced into peso and dollar bonds that quickly collapsed. These episodes show that when fiscal crises hit, even democracies can impose harsh, retroactive levies on citizens’ savings.
Together these precedents underline a simple lesson: in a pinch, states have not shied from treating private wealth as a source of emergency funding. War and crisis rhetoric (“mobilize every resource”) can be a pretext for measures – from patriotic bond drives to outright deposit seizures – that undermine the public’s control over its own money .
Current Warnings from Officials and Institutions
Today’s officials are well aware of these risks. International financial bodies stress that high debt and volatile markets could quickly force governments’ hands. The IMF has warned that “high debt and lack of credible fiscal plans can trigger adverse market reactions and can limit the room that countries have to deal with future shocks”. Its fiscal reports note that global public debt is heading toward record highs (over 100% of GDP) and that political pressures are tilting toward more, not less, spending . In such an environment, investors demand assurances. As IMF deputy director Era Dabla-Norris says, postponing fiscal adjustment “will only mean a larger correction is needed eventually” and heightens the risk of a crisis.
Within Europe, central bankers are sounding similar alarms. ECB executive board member Isabel Schnabel recently cautioned that markets are already adjusting to fiscal strain. She noted that “sovereign bond repricing” – as seen in France – has so far been orderly and need not trigger ECB emergency interventions , but she also implicitly acknowledged the danger if this repricing worsens. Indeed, she stressed that any attack on central bank independence or extreme fiscal policy could push long-term interest rates higher. Back in Germany, Bundesbank chief Nagel has insisted that even a €500 bn defense fund (a measure being considered) won’t alone fix sluggish growth. His warning: bold fiscal steps are “justified” in “extraordinary times”, but they must come with credible reforms, not just unbounded borrowing.
EU policymakers are also debating new channels for funding defense and infrastructure. A recent EU report explicitly calls to “unlock significant private capital” for defense and other strategic needs. One proposal – gaining traction in Europe – is a supranational “Rearmament Bank” that would pool national guarantees and leverage private savings for military-industrial investment. As Poland’s foreign minister put it, such a bank could involve like-minded countries (EU and NATO alike) and would be “voluntary” for members – a way to skirt debt ceilings while still channelling domestic resources into defense. All of this suggests that thinking at the top levels is edging toward creative ways to use citizen savings.
Asset allocation of households differs across EU countries:
The Geopolitical Wild Card: War and Emergency Measures
Geopolitical tensions loom large in this debate. The prospect of an escalation in Ukraine, or any new security emergency, would amplify calls for sacrifice. As one analysis notes, proposals to “mobilise Europe’s significant savings” often come under the rhetoric of urgent defense needs. Leaders stressing a “war footing” often invoke the need to use every available tool – including finance – to face threats. In the past, such rhetoric presaged coercive measures (the Soviet “sale of victory bonds” in WWII, for instance, or post-2008 capital controls in crisis economies). Today, digital finance and new EU treaties have built even more infrastructure for potential capital controls. If politicians warn that “extraordinary times” call for tapping the nation’s wealth, citizens should recall history’s lessons.
Even in peacetime, hints abound that war-like mobilization is on the table. Former and current EU officials speak openly of forming joint military debt mechanisms. ECB and IMF staff urge preparedness. Meanwhile, European savers – reminded by older generations of Cyprus 2013 and Argentina’s corralito – are already stashing cash. One recent survey in Argentina shows people “prefer to have [their] savings at home… as insurance” against a future freeze. In Germany and the UK too, anecdotal reports suggest rising distrust in banks among those who recall past financial upheavals.
Conclusion: History as a Warning
In short, Europe’s sovereign debt crisis is reaching a crossroads. Bond markets are no longer a distant abstraction – they are now visible constraints on policy. As yields climb and ratings wobble, governments face a choice: keep borrowing in open markets at ever-higher cost, or turn to domestic savers. The latter path can be framed as patriotic – “buying Bunds” or “funding defense” – but it carries a heavy historical risk. War bonds, silent rearmament bonds, Cyprus bail-ins and Argentine corralitos all show that promises of national unity can quickly give way to involuntary sacrifices. Analysts like IMF’s Gopinath and Era Dabla-Norris warn that we are in a “fragile” fiscal moment . If crisis rhetoric ramps up, European governments might well pivot to the “people’s purse”.
Citizens should heed these warnings. History teaches that once a government begins even limited tapping of private savings, a little coercion can turn into a lot. For now it’s a political and rhetorical gamble, but not an impossible one. Europeans would do well to remember the past: the next “loan” could come with terms the public never imagined.
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