Low Base Interest Rates: An Opportunity in the Euro Debt Crisis

Kokert, Marius; Schäfer, Dorothea; Stephan, Andreas
May 2014
DIW Economic Bulletin;2014, Vol. 4 Issue 5, p3
Academic Journal
Member states of the euro area have been struggling with the legacies of the severe financial and economic crisis for four years now. But debt ratios are still rising. The crisis countries of the euro area were able to "buy time" with bailout packages and low interest rates. But as long as the other influencing factors are not developing more positively, it remains uncertain whether the current stabilization of the euro debt crisis is sustainable. The ECB's low interest rate policy undoubtedly offers some relief in this situation. First, the interest burden for most countries in the euro area has declined in recent years. This effect has tended to stile increases in the debt ratio. Second, low interest rates strengthen the economy. In turn, this increases government tax revenue and improves the primary balance. Low interest rates also played an important role in driving down the debt ratio in the US. Between 1946 and 1953, the US was able to almost halve its debt with no haircuts. However, negative primary balances, low growth, and low inflation do not allow for a recovery similar to the one in the US after World War II. For this reason, low interest rates currently appear to be the only lever in the euro area which could be used to make euro area countries' debt more sustainable. What is essential now is that they seize this opportunity.


Related Articles

  • EUROPEAN STABILITY AND GROWTH. DOCIU, Madalina; DUNARINTU, Anca // Metalurgia International;2013 Special Issue Nr.7, Vol. 18, p59 

    Functioning as a single market, the European market is a major and highly developed market, which always works to create and ensure continued sustainable growth in all fields, while seeking solutions in order to reduce the impact that the economic development has on environment. Coordinating...

  • Exchange Rates: Recent Developments.  // Slovenia Country Monitor;Jun2012, p13 

    The article reports on the potential of the euro to remain under pressure from weak Eurozone economic data and heightened sovereign-debt concerns. It notes that the euro traded in a 1.40-1.45 U.S. dollar band between May and September 2011. It indicates that the euro had gained support when the...

  • DISTRIBUTORS CHASE BETTER PERFORMANCE ALL ROUND. BAKER, JOHN // ICIS Chemical Business;6/17/2013, Vol. 283 Issue 21, Special Section p6 

    The article reports on the condition of the chemical distribution industry in Europe as of June 2013. According to Edgar Nordmann, president of the European Association of Chemical Distributors (FECC), the performance of the sector during the first part of 2013 was more or less normal. It...


    The interventions done by central banks in order either to provide liquidity or to help the recovery of economic growth, during the lasting effects of the recent financial crisis, have again brought into the light the question how the monetary policy is serving the best a sustainable growth....

  • Exchange Rates: Outlook.  // Slovenia Country Monitor;Jun2012, p11 

    The article presents an outlook on the potential of the euro to remain under pressure over the coming months as Eurozone sovereign debt crisis remain prone to significant increases. It indicates that the euro is seen starting to edge up late in 2013 as market anticipation mounts that the...

  • A Kinder Capitalism?  // America;6/18/2012, Vol. 206 Issue 20, p8 

    The article offers information on the views of cardinal Reinhard Marx on social market economy, which according to him will help Europe evolve from the financial crises it is suffering.

  • Europe's done well. Fred Bergsten, C. // Prospect;Dec2011, Issue 189, p18 

    The article presents the author's views on the Eurozone's handling of the debt crisis. He comments that successful crisis responses have been demonstrated by the European institutions. He remarks that Europe's leaders are almost certain to deliver the desired outcome although they cannot say...

  • Comment. Deane, Susan // Converter;Feb2013, Vol. 50 Issue 2, p3 

    The author raises the concern of countries within the eurozone, including France, Germany and Brazil, about the impact of the financial crisis on currencies, exchange rates and inflation.

  • Austerity versus Stimulating the Growth in EU. PRISECARU, Petre // Knowledge Horizons / Orizonturi ale Cunoasterii;2013, Vol. 5 Issue 3, p61 

    Financial crisis led to a sovereign debt crisis due to high deficits accumulated before the crisis and also due to large bail out programs for commercial banks. Besides the reform of EU economic governance, austerity policies were imposed at national level under Troika control, especially for...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics