Report
How to prevent a debt crisis in the euro zone if the ECB wants to combat inflation?
Given the foreseeable dynamics of rising prices and wages in the euro zone, inflation will easily exceed 8% and the ECB will be forced to combat inflation vigorously. But how can a debt crisis then be avoided in the countries whose potential growth is lower than the euro-zone average (Italy, Greece, Spain)? These countries have a double problem: below-average potential growth, above-average interest rates. Even harmonising interest rates would not suffice to prevent a crisis due to their divergent growth rates. The only solution is a collective solvency guarantee: in exchange for precise fiscal rules, all euro-zone countries commit to ensuring the sustainability of all public debts. This is the only solution that remains once interest rates must be high to combat inflation and once monetary policy can no longer ensure the sustainability of the peripheral countries’ public debt.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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