Would a substantial increase in interest rates our country cost a lot of money?

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Ten years after Lehman Brothers, there are enough risks for a new systemic crisis. What are the consequences if the interest rate would explode to 5 % or 10 %? Would the high level of public debt us than many …

Ten years after Lehman Brothers, there are enough risks for a new systemic crisis. What are the consequences if the interest rate would explode to 5 % or 10 %? Would the high level of public debt us cost a lot of money?

S. V. D.

‘The average interest rate on our national debt is currently around 2,2 %, ” says Freddy Heylen, professor of Macro-economics at the university of Ghent. “The interest rate is fixed, so that an increase of the market interest rate in us not immediately touch. As we new debts must come to the existing loans solve, does a rising market rates with some delay, also the interest on our national debt up. With a public debt of 460 billion means every percentage point increase in the interest rate that we are 4.6 billion more in interest to pay. That is a thick 400 euro per Belgian.’ Increases in the average interest rate on the public debt, to 5% increases the invoice for the interest charges with a 12.9-billion, or +/- 1.150 euro per Belgian.’

“As long as there for those extra expenses can be borrowed, it will cost nothing to the taxpayer but slows down, this is only the rhythm of debt reduction. Increases in the average interest rate on the public debt is very strong then we come in another story. Considering the current growth and budgetary data, results from an interest rate of +/- 4 % to a snowball effect in operation. That is a self-feeding mechanism of rising interest charges and debts. The government, this process can only halt by the primary budget surplus to increase. Ie: through higher taxes or lower public spending. At an average interest rate of 5 % should be our primary surplus will increase by 4.6 billion euros (1 % of GDP) for the snowball effect to stop. This corresponds to a saving of a thick 400 euro per Belgian.’