ECB’s Stournaras: Interest Rates Cannot Remain at Zero Forever

11 April 2021

  By David Barwick – FRANKFURT (Econostream) – Interest rates in the euro area will eventually have to rise, European Central Bank Governing Council member Yannis Stournaras said Sunday. In an interview with Greek television station ANT1, Stournaras, who heads the Bank of Greece, said, ‘Interest rates will go up at some point. Right now we are at zero interest rates. They cannot be forever.’ ‘What matters is that they go up along with the rate of economic growth’, he said. ‘It is the difference between interest rates and the rate of economic growth that matters very much.’ Although interest rates must be taken by Greece as exogenous, spreads are important and here Greece has ‘an important role to play: first, through reforms and second, through a prudent fiscal policy’, he said. ‘After the pandemic, we need to gradually return to a fiscal policy that does not have the large primary deficits that it has today.’ ‘I hope that this will be the last year that we will have such large deficits so that we can return to a downward trend in the ratio of public debt to GDP’, he said. ‘So let me repeat: reforms, reforms, reforms and a fiscal policy which, after the pandemic, will aim at fiscal balance.’ Pandemic-related uncertainty remains ‘very high’, he said. ‘It is not as big as it was last year because we have the vaccines, but it is still big.’ Macroeconomic forecasts are thus ‘surrounded by risks, either downside or upside.’ For Greece, Stournaras predicted growth of 4.2% this year and 4.8% next. Last year’s -8.2% ‘was better than the forecast of many international organizations’, he said. The complexity of the Stability and Growth Pact ‘is not appropriate to go back to’, he said. ‘We need to go back to something much simpler that takes into account the reality, the reality of the pandemic, that has two or three realistic indicators. That is to avoid what we call pro-cyclical policies, what we saw to a very large extent in the Greek crisis.’ ‘When a country is in recession, you do not ask it to take very tough fiscal measures, because these are negated by the so-called snowball effect’, he said.