Because the interest rates of the European Central Bank are now so high, and the interest rates that banks themselves pay to savers are low, financial institutions are ‘subsidized by the government’. So says economist Arnoud Boot.
podcast | ‘Banks are subsidized by the government’
Boot argues that this situation means that the high inflation can no longer be reduced. ‘It means that inflation will never go back into the bottle easily’, if this situation is maintained, says Boot. He describes the current situation: ‘Banks can put their money at the ECB at 3.25 percent. For this, they return an average of 0.4 percent to savers. That means that banks are currently being subsidized by the government at 2.85 percent per euro.’
Low interest mortgages
According to Boot, banks consider this situation desirable because there are many mortgages outstanding with low interest rates that ‘also do not reflect the correct current situation’. “There’s gotta be money somewhere, right?” Boot therefore sees that bankers can no longer save themselves. “If this is the situation, then we are in a world where bankers can no longer bank. Then they have to be helped again every time something changes.’
“The money has become completely detached from the underlying real economy.”
The economist is therefore adamant: ‘Money has become completely detached from the underlying real economy. The only way to regain confidence in the financial economy and money is to anchor with the real economy.” That is what caused the banking crisis, says Boot. “We suddenly see the money flowing out of banks, just on the basis of rumours. They can’t hold any more money.’
‘Beating Anchors’
The task of setting these ‘anchors’ in the real economy lies with the ECB, says Boot. ‘In their communication, they must bring the financial event back to the real economy. That may sound abstract, but the bottom line is that governments translate their expenditure into concrete services within society.’
He points in particular to the government’s many compensation measures. ‘They simply lead to more consumption. When the government invests in public transport and interprets it as an investment in the capacity and strength of the economy, they have hit an anchor. But no anchor has been struck if compensation is given, because that is identical.’
