Even the central banks can’t stop the downturn on the stock market. The Fed (Federal Reserve System) made another desperate attempt on Sunday evening by lowering interest rates to 0 percent and announcing that American banks will buy up to $700 billion worth of debt securities. But these measures hardly showed any effect.
Professor Casper G. de Vries, H.J Witteveen Chair of Monetary Economics at Erasmus School of Economics and fellow of the Tinbergen Institute, is surprised by the measures taken by the central banks and the Fed in particular. ‘These measures won’t help to stimulate the real economy, that is the government’s task. A lot of money will be pumped into the economy. At most, this will stimulate demand a little, but the problem lies on the supply side.’
Government debt will continue to rise
De Vries is, however, more positive about the measures announced by the European Central Bank last week, such as cheaper credit allowances. This way, companies experiencing financial difficulties due to the coronavirus can keep on financing themselves. What is inevitable, according to De Vries, is that government debts will continue to rise. This will increase tension in the Eurozone. With a national debt of approximately 49% of the gross domestic product, the Netherlands still has enough room to stimulate the economy. For Italy, with a debt ratio of 135%, this is a completely different story. If that debt continues to rise, there is a growing risk that Italy will lose its market confidence, which would lead to rising interest rates and an unsustainable debt burden.
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Read the full article in the Telegraaf here (in Dutch). 16 March, 2020.
