First the bankruptcy of the American Silicon Valley Bank. Then the Swiss Credit Suisse crisis. And so, in a matter of days, Europe’s ten largest banks lost more than 50 billion euros in market capitalization. But experts call for calm: European institutions are in a much more robust position than in the past and will be less at risk of contagion. But that doesn’t mean the European Central Bank can sleep peacefully: In Frankfurt, the rationale for those within the Governing Council fearing that the gradual rise in interest rates could destabilize the Eurozone, particularly countries like Italy, found support in the Credit Suisse crisis. And they can halt the upward momentum that is causing mortgage payments to swell.
Frankfurt and the crisis of confidence
But for now, the ECB is going straight: During the week, the Christine Lagarde-led institution raised interest rates another half percentage point, a 4% of its inflation-fighting strategy. “The ECB has all the necessary monetary policy tools to provide liquidity support to the eurozone financial system when needed,” Lagarde said confidently. said.
However, the mood of the European banking sector is not as solid as it used to be. “The problem is that trust cannot be bought,” writes El Pais. may be at risk in their home countries, and analysts underline that investors are not taking it very well.” The Spanish newspaper writes that the day after the rate hike, the ECB also called a surprise meeting regarding the Credit Suisse case, which was “perceived by the markets as another sign of instability”.
“Credit Suisse has created a serious crisis of confidence in the European financial sector and it is very difficult to get out of it,” said Nuria Alvarez, investment analyst at Renta 4 bank. “You can be a very reputable bank, do your homework in terms of risk and capital management, but if the market starts to get suspicious, it’s hard to convince them that you’re not the problem,” he says. Blocking a bailout, Credit Suisse (under US pressure there is talk of UBS involvement) is on the brink of disaster. And it is a systemic bank, meaning it is considered essential to maintaining the stability of the European financial sector.
Crossroads for the ECB (and Italy)
The ECB cannot escape this evidence. “His job has gotten a lot more complicated,” says Alvarez. If they continue to raise interest rates, the market may interpret this as evidence that the crisis is about to get worse. If they are not raised, inflation may remain strong, which will hurt Turkey. banks”. In Italy, the government has made it clear that it prefers the first option: an increase in the cost of money leads to an increase in the cost of public debt, because governments have to pay higher interest rates on their debt, which in turn has negative effects on the economy budget. European Central The anti-proliferation shield his bank has promised has political ramifications for Italy that could increase rather than reduce risks.
And then there’s the mortgage part: the recent increase by the European Central Bank could lead to a nearly 6% increase in the installments of variable mortgage holders in Italy. According to an estimate by Mutuionline, “compared to February of last year, a variable mortgage installment from 140,000 euros to 20 years has so far increased by 25.3% (from 625 euros to 783 euros), and for a mortgage more than 250,000 in 30 years 43%, 7 increased (from 793 to 1,139 euros)”. With the latest decision taken in Frankfurt, the 20-year installment “will reach 819 euros and 1,212 euros in 30 years, an increase of 4.6 percent and 6.4 percent respectively compared to today”.
Source: Today IT
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.