After years of stability in ECB interest rates (since March 2016, the most relevant remained at 0.0%) for months now. Because it was in July that rates rose to 0.5% and yesterday, in their eighth increase, they rose again to 4.0%. A level that, once you have seen the inflation predictions, it seems that it will not be the last rise: Lagarde insisted again that we are not at the end of the road to travel and that in July, we will probably see new movements. Bad for everyone.
It is true that interest rates are relevant. But it is just as important or more important what the ECB does with zero-cost loans to banks or with its huge portfolio of public funds. As for the former, the reduction in their balance has been very substantial: since October, the Spanish bank has returned two-thirds of the nearly 300,000 million it obtained two years ago. And yesterday the ECB announced that it expects those repayments to continue. Added hardness
In terms of debt purchases, those made in recent years total around 5 trillion euros, an enormous expansion that explains why the price of public debt has not stopped rising and, with it, its yield has fallen. This situation began to change when rate hikes were transferred to public debt, so that both the cost of financing the deficit for the year (in 2023, about 55 billion) and the cost of refinancing the debt issued became more expensive previously And on top of that, its volume is considerable: around 1.5 trillion (Barcelona) euros, of which nearly 600,000 million have been bought by the ECB, which has changed its policy in relation to that sum parked in its balance: in March it already decided to use only part of the resources from its amortization to acquire new titles. And yesterday more bad news: the bulk of those amortizations will no longer be allocated for that purpose. More pressure on governments.
By cheapening the price of money, lending to banks at zero rates and acquiring significant volumes of debt, the ECB has allowed the south not to feel the cold of the markets. But yesterday’s decisions confirm and harden the change in temperature that the northern winds send us from Frankfurt: from the warm summer or the southern warmth of recent years to the icy currents that have been arriving, with increasing force, since last July . Because if you add it all up (55 billion deficit and nearly 180 billion debt repayments) you will see how far the needs go, and their financial cost, for the Treasury in 2023. And add that, from on January 1, the Stability Pact returns and the picture that emerges is simple and plainly severe: the time for the reductions has arrived. It’s what you have, whoever governs, not to have the house in order: eventually, you have to pay.
