German Economists Favor Further Interest Rate Increases and More Equity in Banks
Banking problems notwithstanding, economists in Germany believe the European Central Bank (ECB) should increase interest rates further. This is the finding of the latest ifo Economists Panel, a joint undertaking with FAZ. The survey was completed by 132 economics professors at the end of March. It found that 67 percent support further interest rate increases, 21 percent are in favor of retaining current interest rates, and only 3 percent believe interest rates should be lowered. At the same time, they call for more equity on the part of European banks as security. Almost three quarters (72 percent) are in favor of this – once the current turmoil has passed. At 76 percent, support for introducing equity for government bonds for the first time is even stronger. “Experts are slightly uneasy but don’t expect a severe financial crisis,” says ifo researcher Niklas Potrafke.
Participants disagree on whether the banking problems could burden the real economy in 2023. While 41 percent expect this to be the case, 44 percent do not, and 15 percent responded “Don’t know.” Only 17 percent see a risk of a financial crisis similar in severity to the 2007/2008 crisis; 74 percent don’t expect this to happen. A good 46 percent agree (9 percent completely, 37 percent “somewhat”) with ECB President Christine Lagarde’s statement that the euro area banks are resilient, while 29 percent disagree (21 percent “somewhat,” 8 percent completely).
Previous efforts to make banks sounder and protect taxpayers from liability have not been successful, according to 48 percent of those surveyed; 42 percent believe the opposite is true.
While 38 percent don’t expect systemically relevant banks to face financial difficulties, 36 percent do. Just over a quarter of respondents (26 percent) said “Don’t know.”
ifo Viewpoint 246: The Current Banking Quake: Where Does It Come from and What Should Policy Makers Do?
The crises at Silicon Valley Bank and Credit Suisse have shaken the world of finance. While policymakers and central banks are being placatory, the markets are not calming down. Banks that very recently seemed healthy are running into liquidity problems.
Banking Crisis: Economists Do Not Expect a Severe Financial Crisis and Continue to Call For Interest Rate Hikes to Combat Inflation
Banks in Europe and America are currently gripped by a great deal of uncertainty. The 42nd ifo and FAZ Economists Panel focuses on the current turmoil in the financial system. The survey, in which 132 economics professors participated, was conducted from March 23 to March 30, 2023.
