Nearly seven billion more interest charges to be paid on loans and mortgages to businesses and households by 2024. It’s the gracious “hidden tax” that ECB President Christine Lagarde gave us when she decided to raise rates by 0.50%. The calculation was made by Confesercenti, who warns of “reckless” maneuvers by the European Central Bank. «The rise in interest rates has a significant impact on household spending – warns the association -. Continuing in this direction runs the risk of jeopardizing the already fragile recovery in consumption. And also to nullify the possible positive effects of the possible reduction in family taxation following the tax reform”. An alarm also shared by the Minister of Foreign Affairs, Antonio Tajani, speaking on the sidelines of Feuromed, the Euro-Mediterranean Festival of the economy that took place yesterday at the Maschio Angioino in Naples: «I don’t think it’s right to continue increasing the cost of money because it harms the companies that they can no longer launch new initiatives and it harms families at a difficult time because we are coming out of two crises, the financial one and the Coronavirus one, and we have the third one linked to the war. I think we need to study a different strategy to fight inflation».
«The ECB is autonomous, it is not up to us to intervene – he added -. We can make an economic-financial assessment by analyzing the inflation that exists in Italy and Europe. This inflation comes from external factors, the war in Ukraine and the increase in energy prices and is fought by putting a cap on the price of gas, for example, inflation drops because the price of gas and energy drops. However, I noted with satisfaction that during the announcement of the 50-point increase in interest rates, there was no longer any talk of new decisions in this regard. Let’s go, therefore, in the direction indicated by Visco, that is, to face events case by case: I share his position, a lot of prudence is needed when raising interest rates ». The Confesercenti study gives substance, with numbers and percentages, to the chancellor’s fears. In just 9 months – writes the association – the ECB returned interest rates to the levels of October 2008, that is, 15 years ago. A strategy that translates into a stinger for companies and families.
In detail, “in the last year, the interest rate on loans to non-financial companies rose from 1.09% to 3.90% and that on loans to individuals for house purchase rose from 1.49% to 3.79% . This means that interest expenses on loans to companies increased by 258% in the last year and in mortgage loans to households by 154%. And with the increase in the reference rate set by the ECB by another 0.50%, this increase in interest expenditure will be even greater next month”. The result is that the squeeze will inevitably impact economic activity and households. “Assuming all maturing loans are renewed, household and business interest expenditure is expected to increase between now and the end of 2024 from 4.4 billion to 11.2 billion. Around 1.6 million families witnessed a sharp increase in mortgage loan installments: amounting to 600 euros, the increase, also considering the latest increase in rates, can be estimated at a further 160 euros. On the consumption side, in a period already marked by many uncertainties and with inflation compressing household disposable income, the new monetary policy will reduce the increase in expenditure by 0.2% this year, which will therefore remain at 0.5% , thus hampering the expansion of the GDP».
Source: IL Tempo
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.