Depending on which euro country you live in, price hikes can vary wildly. More than ever, says De Jong. “The differences in inflation between euro countries are unprecedented,” he says. “We’ve never seen that before.”
‘The differences in inflation between euro countries are unprecedented. We’ve never seen this before’
For reference, includes figures from the United States. ‘Even states have their own inflation data. And there are differences, but they are very minor compared to us.’ Although De Jong points out that if one looks only at core inflation, ie without including energy and food prices, the European differences are smaller. “But they remain significant.”
Public debt leads to higher interest payments
The reason these differences are so large is clear: the national debt. The higher interest rate results in higher interest costs and therefore much higher repayments. “Look at Italy, a country with a public debt of around 150%,” says De Jong. ‘Compare that with the Netherlands, which has about 50 percent. If the interest rate on capital rises by 3 per cent, it means that Italians will have to pay an additional 4.5 per cent of interest on public debt».
If you translate that into a Dutch context, it amounts to 40 billion euros in extra payments, according to the economist. “If you don’t want the public deficit to increase, you have to cut elsewhere,” he says. It is not an attractive scenario for Italian politicians. It is therefore logical that they sound the alarm and tell the ECB: enough of those rate hikes now’. According to him, it does not facilitate the policy of the ECB.
Politically independent
De Jong points out that the ECB operates independently of politics and should not let itself be influenced by external pressure. “There is an Italian on the board of directors in Frankfurt, and also the head of the Italian central bank decides on interest rates,” he says. “But the intention is that they look at the whole of Europe and not that they represent Italian interests”.