bury the anti-inflation hatchet Raise rates or not raise them: if the path of the Fed by Jerome Powell seems in some ways already traced, that of the ECB by Christine Lagarde still appears very nebulous, in a context also characterized by the risk of a bubble present on the real estate market of some euro area countries.
An analysis by Reuters speaks of the issue, which indicates that five of the ten countries that in 2020 faced the most sustained rise in house prices are part of the Eurozone, according to data from the International Monetary Fund (IMF).
The ECB has already raised its antennas, fearing a real estate bubble that could trigger an economic and financial crisis “just when the memory of the crash of 2008 begins to fade.”
The point is that the European central bank led by Christine Lagarde has its hands tied. Hands tied, in particular, from Italy and Greece.
“The ECB – reads the article – cannot raise interest rates too quickly or excessively to help some Eurozone member countries, as doing so would affect other more indebted euro area countries, such as Italy and Greece “. And the central bank “He wants to avoid another sovereign debt crisis”.
So?
The article underlines that the ECB is thus forced to “rely on governmentsoften reluctant, to convince them to cool the real estate market through so-called macroprudential tools, which have the advantage of targeting real estate markets directly, rather than the economy as a whole, ”reads the Reuters article.
“Especially in the Eurozone, with the same (reference) rates that apply to different countries, macroprudential tools are best suited to fight the bubbles in the real estate market ”, commented Grégory Claeys, senior economist at the Bruegel think-tank.
The picture only confirms the fragmentation of the Eurozone, and to what extent the different needs of the member countries affect the choices of the authorities.
Among the macro-prudential instruments, there is the request by governments to banks to increase the levels of extra capital when they disburse the mortgages, or the introduction of maximum ceilings – deeply unpopular – on the value of the mortgages themselves, based for example on the purchase price of the property or on the income of the potential buyer “.
The problem is that the ECB cannot impose these anti-speculation brakes directly, but can only issue warnings or recommendations through the European Systemic Risk Board (ESRB)which is the body of the European Union that supervises financial stability.
Among the most recent moves, the ESRB asked Germany and Austria to impose limits on the disbursement of mortgages, and to demand capital increases from the banks.
The point is that such requests are not even binding, so much so that the German Finance Minister has returned to the sender the recommendation to introduce un ratio loan-to-value to home buyers.
The article recalls that Germany has just announced a plan to introduce some limits: it is a pity that it is intervening ten years after the start of a housing boom that saw house prices – and to say it is the German central bank Bundesbank itself – jump to overvalued levels of 20-30%.
“When severe macroprudential measures are used, the party is disturbed “, commented Joerg Kraemer, Commerzbank’s chief economist.
The ERSB warned this month that countries like Finland and Holland they are not doing enough to curb mortgage lending despite his recommendations.
Ireland is another real estate market under observation. The country has witnessed aun boom in house prices equal to + 14.4% in 2021 despite the severe restrictions applied in 2015. Here the mortgage ceiling was set at 3.5 times the gross annual income of those who take out a mortgage.
The concern of some ECB exponents is such – among other things in times of boiling inflation also in the euro area, with the consumer price index growing by 5.1% on an annual basis in January – that someone is suggesting to give house prices a greater weight in inflation estimates and also in the decision on interest rates, as happens among other things in New Zealand. Speaking of which just today the Reserve Bank of New Zealand raised rates, anticipating new monetary tightening.
Difficult times for central banks, which are coping to the specter of rapidly accelerating inflation, now also due to the danger of energy shock fomented by the Ukrainian crisis.
The threat of an invasion of Ukraine by Vladimir Putin’s Russia in fact, it is increasing the risk that inflation, instead of slowing down, will increase. There is talk of an inflation boom risk in the US of over 10% on an annual basis and of oil prices that could soar up to + 40%. Although BlackRock then advises central banks to bury the hatchet against inflation.
And this is because aggressive monetary tightening launched to combat inflation triggered not by the boom in demand, but by supply problems, “in fact – according to BlackRock – would do nothing but sabotaging an economic activity that has not yet fully recovered ”.