Does 2008 repeat itself?
Bundesbank chief sees no financial crisis 2.0
03/22/2023, 10:14 am
The last few weeks have fueled fears of a new financial crisis and brought back memories of 2008. Bundesbank boss Nagel does not believe that it will happen again. The eurozone system is “resilient”. However, banks could become more cautious when lending.
Bundesbank boss Joachim Nagel does not see a new financial crisis looming and is in favor of a further increase in interest rates in the euro zone due to the sharp rise in prices. “Our fight against inflation is not over yet,” he told the Financial Times. He still has the impression that “price pressures are strong and broad-based throughout the economy”. “There is still a long way to go, but we are approaching the restrictive area,” he said, referring to the interest rate level. The Governing Council member also argued that the European Central Bank (ECB) must resist calls for a rate cut after it has stopped raising rates.
Nagel currently sees no risk of contagion in the euro zone’s “resilient” banking system. “We are not facing a repeat of the 2008 financial crisis,” said the head of the Bundesbank. “We can handle this.” The head of the German central bank did not rule out that European banks would now become more cautious in lending after the turbulence surrounding the ailing Credit Suisse and the bankruptcy of the Silicon Valley Bank. However, he does not currently fear a credit crunch. It is “too early” to come to this conclusion. A credit crunch is defined as insufficient lending to the real economy, which can severely affect the economy.
Many experts currently see the ECB in a difficult situation, as it has to fight an impending financial crisis and sharply rising prices at the same time. It raised its key interest rate for the sixth time in a row last week, from 3.0 to 3.5 percent. This makes loans for investments more expensive, which can dampen demand and slow down inflation – but also the economy. Inflation remains stubbornly high. In February, consumer prices rose by 8.5 percent compared to the same month last year. The ECB is aiming for an inflation rate of two percent in the medium term, but according to its own estimates it will miss this target for a long time.