2023-05-15 14:28:00
Europe is not at risk of a real estate or debt crisis due to the rapid rise in interest rates by the European Central Bank, European Economics Commissioner Paolo Gentiloni said on Monday.
The ECB has raised rates by 375 basis points since July to rein in inflation, which hit double digits last fall and which the eurozone central bank says will not return to its target of 2% before 2025.
This makes borrowing more costly for governments, many of which are already heavily indebted to support economies during the pandemic and the cost-of-living crisis caused in large part by Russia’s invasion of Ukraine.
It also increases the cost of servicing mortgages which are tied to the rate of inflation.
Speaking to reporters ahead of a meeting of eurozone finance ministers to discuss the European Commission’s latest economic forecasts, Gentiloni said some countries might face difficulties, but not the European Union as a whole.
The housing sector creates different problems in different countries – it depends on the nature of inflation-linked or non-inflation mortgage systems,” Gentiloni said.
“In a few countries we will face difficulties, but overall I don’t see a European crisis from this point of view and I don’t see any real European difficulties in terms of debt management.
“Yes, interest rates increase the cost of debt, but that’s happening in a limited and perfectly manageable way,” he said.
The Commission predicted earlier on Monday that growth this year and next in the 20 countries sharing the euro would be slightly stronger than expected in February, even if inflation remains higher for longer, and debt public will decrease.
Michael McGrath, Ireland’s finance minister, who experienced a property crisis more than a decade ago, also said there were no signs of a crisis in the property market, with demand supported by population growth.
“That’s not a problem in the Irish context,” he said.
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