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EU presidency pushes talks on raising interest rates

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EU presidency pushes talks on raising interest rates
European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium June 20, 2018. REUTERS/Yves Herman   -   Copyright  Yves Herman(Reuters)
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BRUSSELS (Reuters) – The Austrian presidency of the European Union has asked the bloc’s finance ministers and central bankers to discuss a hike in interest rates in meetings to be held later this week in Vienna.

In a move that could be seen as a partial encroachment on the powers of the European Central Bank, the Austrian government, which holds for the EU’s rotating presidency, wants to hold a discussion on “financial stability implications of increasing interest rates,” a document seen by Reuters said.

“Do you agree that interest rate normalisation will in itself not generate problems in the financial sector?” Austria will ask EU finance ministers and central bankers at meetings on Friday and Saturday.

As inflation has built up in the euro zone in recent months and growth is solid, the ECB plans to end its purchases of the bloc’s government bonds this year, but interest rates are expected to remain unchanged at negative rates at least for another year.

Without suggesting a timing for rate hikes, the Austrian presidency underlined in its paper that “in the USA, the FED, which implemented its measures in times of financial turmoil, has already started to increase policy rates with no major economic disruptions yet.”

A spokesman for the Austrian presidency was not immediately available for a comment.

The ministers’ discussion will be assisted by a document produced by the Brussels-based think tank CEPS in which the author Daniel Gros “sees little reason to worry about the impact of policy normalisation on the real economy or its global impact,” the Austrian document said.

The Austrian paper acknowledged that there are risks linked to a “sharp” increase in interest rates, as highly-indebted borrowers may not be able to meet their repayment requirements.

To reduce the risks to the economy of banks’ high debt, the paper said the bail-in of lenders’ investors was of “utmost importance” but added that for some banks “other tools” might need to be used to address their problems, it said without providing more details.

(Reporting by Francesco Guarascio; additional reporting by Peter Maushagen, Editing by William Maclean)

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