"Increases up to 90 euros": the "bomb" of the EU hawks on mortgages

“Increases up to 90 euros”: the “bomb” of the EU hawks on mortgages

The “hawks” of European Central Bank are holding the tiller straight on the rate hike front and at the Eurotower board on Thursday there will be a battle to understand if the analyst consensus of a 75 basis point hike will be confirmed or if the penalty takers will win it on the increase of a further 25 points. A + 1%, instead of a + 0.75%, would mark the second blow after the increase in July was 0.5% instead of 0.25% and would make the institution led by Christine Lagarde in terms of combating inflation, even exceeding the rise in the US Federal Reserve.

“The collegiality it always requires in the Eurotower Governing Council next Thursday will be undermined by the demands of the most orthodox central bankers,” he notes. The print. At the forefront Estonia, Latvia, Lithuania and Austria, with the inevitable external support of the Netherlands which prefers not to expose itself as “falcon” more divisive. With European inflation at 9.1%, a hot autumn approaching, the ongoing energy crisis and the risk of production closures on the way, many countries are taking the new ECB target on limiting to 2% more seriously. increase in the cost of living. And with this in mind “the president of the Bundesbank, Joachim Nagel, has stressed several times in recent weeks that it is necessary to have a peremptory approach against inflation, before it is too late. Translated, more substantial increases in the cost of money”. However, Germany does not want to propose in the first person.

And in recent weeks Germany has set a clear and clear line on the front of the fight against inflation by “deploying” Isabel Schnabel, ECB executive committee member, who stressed at the Jackson Hole central bankers meeting a week ago that the bank would be willing to raise funding costs to a level that would lead to higher unemployment and possibly recession to fight inflation .

This possibility, which also authoritative publications such as the Financial Times damage as extremely probable, can have a significant impact on the current accounts of European and Italian citizens in particular. The first front to look at, of course, is that of growth, given that together with the rise in interest rates, the ECB will end the purchase of securities which will make the cost of servicing the debt more onerous by subtracting resources from investments and economic recovery.

Then there is the great problem of the mortgages. In recent years, homebuyers have been able to take advantage of historically low interest rates in a favorable trend. In Italy from 2019 to 2022 they grew by 9%, reaching 417 billion. The music changed in July, as the previously zero fixed rate rose to 0.5%, while the previously negative deposit rate returned to zero and the marginal loan rate rose to 0. 75%. If they rose respectively to around 1-1.5%, 0.5-1% and 1.75%, a 10 or 20-year fixed matrix rate could pass, also counting the weight of the Euribor around 0.3% annual, from 2.4-2.5% overall to a maximum 3.5-4.5%, making, thanks to the impact of inflation, relatively cheaper variable rate choice strongly discouraged for investors in the years of easy money by the ECB. For a 30-year floating rate loan of 250 thousand euros, simulations commissioned by Republic they speak of a monthly increase of almost 90 euros. And the state coffers will also be affected by the guarantees to young people and the dynamics of protection they have encouraged.

In this context, the increase in spending for many citizens, coupled with the disincentive to investment and the ensuing credit and corporate lending crunch, sovereign bond tensions and uncertainties about growth, suggest that a too abrupt rise in interest rates by the ECB can be extremely dysfunctional. And that the timing of the hawks, terrified of inflation, is not justified and rather risks only aggravating the problems: favoring a monetary tightening in case of uncertainty, certain depressive effects are created on the real economy at every level without any certainty of fighting against inflation mainly due to external factors such as energy. With the only risk of bringing Europe back into the trap of the combination of high inflation and stagnation.


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