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bne October 2021
Opinion 75
rates. Any possible increase of the sum of EU countries’ debt disproportionately affects them, and their relatively greater dependence on foreign sovereign debt financing, which stems from the relatively small size of their national financial markets and the high degree of foreign ownership, gives them less freedom to manoeuvre in times of stress.
Indeed, we have been here before: the issue of dominant foreign ownership in small EU member states' financial markets surfaced during the 2011 Eurozone sovereign debt crisis, when foreign owners resorted to the financing of domestic bonds in times of financial turbulence. All of this means that, when assessing debt sustainability in small countries, no debt ratio is absolutely safe for small countries, even if the interest-growth differential remains negative.
Nursing the euro area economy back to health after the pandemic will necessarily be by accompanied by further deficit spending. This would be followed by a period of fiscal rebalancing. EU states will ideally realise that negative
ISTANBUL BLOG:
Turkey’s official inflation – nothing if not a head-scratcher
Akin Nazli in Belgrade
Turkey’s official annual inflation in August moved up to 19.25% from July’s 18.95%, despite market consensus expectations that it would fall very slightly and, more intriguingly, despite President Recep Tayyip Erdogan having stated that in the pursuit of low inflation “the month of August is the turning point”.
In Turkey, the official data on inflation, growth and other key indicators have a habit of being almost exactly in tune with what Erdogan predicts, so it is hard to fathom what is afoot this time round. Erdogan also anticipated that the central bank’s policy rate of 19% would be cut in August–the markets have come to regard Erdogan as at the helm of Turkish monetary policy –
yet the rate was kept constant by the central bankers.
To recall, back in March the previous central bank governor was reportedly fired after he annoyed Erdogan by hiking the policy rate to where it stands now. But if that is correct, how is it that his successor still has his job despite not having cut the rate?
This blog has often noted that in Turkey when “unnamed Turkish officials” brief international news services on
interest-growth differentials will not last forever and try to do this before the ECB steers course towards monetary policy normalization.
At the same time, the broader context of the present European fiscal architecture will be revisited, and rightly so. While an overhaul towards a “standards-approach” may not be currently viable, a targeted reform is desirable, as well as instruments that emerged in SGP’s aftermath, such as the more recent Recovery and Resilience Facility, which could be upgraded into a proper counter-cyclical fiscal instrument in times of shocks. But, when considering these reforms, we need to do so from the perspective of all member states, and bear in mind that even small economies have the potential to trigger much larger upsets.
Ivan Šramko is a former Chairman of the Council for Budget Responsibility, Governor of the National Bank of Slovakia, and OECD ambassador. Sona Muzikárova is Chief Economist at GLOBSEC, a leading Central European think-tank.
so-called behind-the-scenes thinking it is so very often only
for manipulation. When the number of anonymous officials singing from the same song sheet rises to half a dozen or more, it is not the case that the information in question can be said to have been confirmed by many different sources; nope, this actually confirms that there is official discourse that has been quite deliberately put into circulation.
The pursuit for the logic behind occurrences in Turkish politics takes one on to treacherous ground. Thus, a move for revenge made by Berat Albayrak – Erdogan’s son-in-law and the previous finance minister, who fell on his sword late last year at a point when Turkey was in danger of another balance of payments crisis – might have been the real reason for the firing of the previous central bank chief rather than the explanation that went into circulation, namely that he failed to ease rates. But the Albayrak explanation is also just speculation. Finding reliable information on the workings of the Erdogan regime
is a tough call.
Turkey’s official data releases can similarly take you into something of a maze. You may see the inflation figure
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