What it means for salaries, loans and prices to maintain high interest rates by the ECB

Impact on and service of citizens’ obligations, announcing on Thursday (7.3.2024) that at least by summer there will be no reductions, thus maintaining the cost of money high. Thus, the extension of the ECB’s expanded interest rates at least until June – as Christine Lagarde said they would expect to see the inflationary figures of that month – prolongs the already increased cost of serving housing loans, which over the last two years has turned into “brochnas” for borrowers who wanted to acquire their own home. In addition, high interest rates affect the housing market more widely , as well as rent prices are kept high as the operating costs borne by the owners are passed on to the tenants. It should be noted that by maintaining interest rates at high levels, the total ‘weight’ of credit remains intolerable. As the Bank of Greece announced for January, the average weighted interest rate on new loans to households and businesses increased to 6.15%, to consumers with a fixed duration and variable interest rate remained high at 12.08%, while to floating-rate housing loans increased by 39 basis points to 5.47%. What high interest rates on wages mean The ECB’s announcement shows ‘bad news’ for both wages and expectations for their increases. This is because Frankfurt highlights as a central factor of ‘resistance’ of inflationary pressures wage increases as, as stated in its communication, most inflation indicators have further weakened, but price pressures remain high, partly due to the sharp increase in wages. In the same spirit, and the Bank of Greece says that the significant appreciation of the euro due to high interest rates in the Eurozone and the gradual reduction of the difference over the US negatively affected the competitiveness of the Greek economy in 2023. On this basis, in the debate on the minimum wage, the TTE presides over the “institution of verbal wage increases in 2024, such as will not jeopardise past profits in terms of extroversion and competitiveness of the economy that have been hard achieved.” More simply, TTE says that high interest rates “bring” a reduction in competitiveness and as a consequence there should be restraint on employee wage increases. Furthermore, the reduction of expectations for the course of the minimum wage is pushing down the overall wage levels of the Greek economy. A ‘side’ effect also arises for prices. This is because the slowing down of wage increases below inflation levels, in the above general context of high interest rates, keep consumer demand low, and therefore remove the possibility of a wage-price spiral and do not further fuel inflation, at least on a theoretical basis. However, there are not a few who point out that…