If the Netherlands had issued long-dated bonds during the period of low interest rates, we would not be stranded by the negative effects of rising interest rates. So says the economist Edin Mujagic. The government lacks 7.5 billion euros, to refinance it requires an annual figure between 5.8 and 9.2 billion euros. That is between 340 and 540 euros per year for every Dutchman.
Mujagic thinks that’s a shame, because much of that damage could have been avoided if the Netherlands had done the same thing many countries did when interest rates were so absurdly low: issue long-term government bonds. Because if you lengthen the average life of your debt, you’ll be less affected by interest rate hikes.
Governing is looking to the future
And while many countries used the period of low interest rates to issue bonds with maturities of 50 or even 100 years, the Netherlands continued to use maturities of 10 and 30 years as usual. But why? “I have no idea what the Dutch finance ministry was paying for, other countries have used such low interest rates,” says Mujagic.
‘Governing is looking ahead, we were in a period of even negative interest rates, something you know won’t last forever. If we had been issuing those bonds for a long time, we would now have lower interest charges and could have spent our money better. Now we are paying black and blue for burdens that could have been avoided.’
3 options
What options do we have then? Three, says Mujagic, and none of them are painless. If you raise taxes, the pain will end with us, if you borrow more in the financial markets, it will end with us, and if you cut spending, that will hurt too.
The good news? Producer prices in Germany are falling for the first time in two years. And this is the first sign that we are past the peak and that we are on the same path that the United States has taken before us: that of lower inflation.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
