Europe Economy

Why peripheral euro zone debt is worrying investors again

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Companies in the peripheral euro zone countries which caused the near-disaster of the euro zone debt crisis are borrowing big again.

Leveraged loan borrowing from peripheral euro zone nations is at its highest level for the year to date since 2007, according to Dealogic.

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While the amount borrowed this year so far, $43.7billion, is still substantially lower than the equivalent $76.2 billion in 2007, it is 64 percent higher than the same time in 2013, and may increase concerns that leverage levels may reach dangerous levels once more.

Companies based in Ireland, acclaimed as a poster boy for bailout-imposed austerity, have been the biggest borrowers in the peripheral euro zone, as optimism returns to the country's economy following its bailout exit. In contrast, there have been no leveraged loans signed by Greek companies this year, for the first time in nearly two decades.

A Greek national flag, left, flies outside the Parthenon temple, on Acropolis hill, in Athens, Greece.
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This may partly be due to a rush to re-finance before the period of historically low interest rates draws to a close. And investors are looking for somewhere to put the huge sums of cheap money pumped into the financial system by Western central banks.

There are particular concerns about new issues of bank bonds.

On Tuesday, Spain's biggest bank Santander announced a plan to issue up to 2.5 billion euros ($3.28 billion) in contingent convertible "CoCo" bonds. This kind of bond, which is relatively high yielding but can be written off entirely if the bank's capital levels drop below a certain level has caused concerns about increasing risks to investors.

There are expected to be a number of new peripheral euro zone bank bond issues of these kinds of bonds in coming months.

"The time to worry about bank capital is when the weaker banks try to deluge the markets," Bill Blain, strategist at Mint Partners, warned.

- By CNBC's Catherine Boyle