Euro zone: A rise in dollar long-term interest rates is the worst that could happen

If dollar long-term interest rates were to rise in the future, in particular in the event US wage policy were made more favourable to wage earners, driving up inflation in the United States, euro nominal long-term interest rates would also rise. This would result in: A slowdown in domestic demand in the euro zone, since, unlike in the United States, the rise in interest rates would not be accompanied by faster wage growth, and since fiscal policy would inevitably become more restrictive in the euro zone to preserve countries’ solvency; A loss of (public and private) borrower solvency in the euro zone and a fall in asset prices, due to the rise in real interest rates (the rise in nominal interest rates would not be accompanied by a rise in inflation in the euro zone). An interest rate shock in the euro zone hat emanated from the United States and did not result from a domestic cause would be highly negative .