José Luis Escrivá warns that a low interest rate environment should not lead to underestimating the cost of public debt

May 03, 2019

The president of the Independent Authority for Fiscal Responsibility (AIReF), José Luis Escrivá, participated today in a conference about the sustainability of public and private debt in Stockholm. There he questioned the idea that the current environment of low interest rates allows, especially in the case of the Euro Area, a more benign view on the cost of public debt. The Euro Area is particularly prone to generate “multiple equilibriaan contexts of loss of confidence” whereby public debt dynamics can change very rapidly towards dangerous trajectories and emerging markets- type crisis of balance of payments cannot be ruled out.

José Luis Escrivá, participated in a high-level session with Catherine L. Mann, Citi’s global Chief Economist. In the meeting, he outlined the unique factors of the Euro Area that question, as it may happen in the United States, that the limits of fiscal policy in a world of low interest rates,will be linked to the evolution of inflationThe markets are pricing in a strong sovereign-banks risk feedback loops questioning the strength of the new architecture of the banking union.

In addition, he warned about the persistence of the two major set of factors that caused the latest debt crisis in the Euro Area : domestic policies inconsistent with the single currency and risk of failure in the coordination of policies to address potential situations of crisis in the Euro Area.

The event, organized by the Bank of Sweden (Riskbank) and the National Association for Business Economy (NABE), is part of an Economic Symposium that aims to explore the challenges and factors that shape the economies of the United States and Europe and its implications for the companies. A distinguished group of economists, politicians and economic and business leaders have participated in it.

This is the fifth global symposium organized by NABE in collaboration with central banks and economic organizations. The first was held in May 2015 in Munich with the Bundesbank; the second took place in Paris in May 2016, in collaboration with theOECD; the third was held in May 2017 at the Banca d’Italia in Rome and the fourth was held in April 2018 at the headquarters of the Bank of Spain in Madrid.