World Economy

Europe’s Low Interest Rates to Stay for Long

Jeroen DijsselbloemJeroen Dijsselbloem

European inflation and interest rates will be low for a longer period of time, said Jeroen Dijsselbloem, who heads the Eurogroup of eurozone finance ministers.

“Interest rates have been going down for 20 years. And due to a number of circumstances, among which is technological developments, aging, energy prices, I think interest rates and inflation will be low for a longer time,” Dijsselbloem, who is also the Dutch finance minister, said in a Bloomberg Television interview in Italy. “We have to readjust to that new reality.”

While slowing growth and inflation present difficulties for central banks around the industrialized world, the European Central Bank has particular cause to urge pro-expansion measures by the 19 nations that use the euro. High unemployment, political spats and banking systems loaded with soured loans are hampering the region’s recovery from a debt crisis that started six years ago.

At the same time, the debate in the US is focused on whether the Federal Reserve will raise interest rates in September or December. Fed Chair Janet Yellen left the timing of an interest-rate hike open in a speech last week, saying that the case for such a move “has strengthened in recent months,” and the central bank’s decisions depend on the degree that data “continues to confirm” the outlook.

“In the short term, you have to realize that the US is already further ahead in the economic cycle, reaching high levels of employment,” Dijsselbloem said in the interview at the Ambrosetti Forum in Cernobbio. “We are catching up, but not there yet.”

The ECB’s benchmark rate is at zero, and the deposit rate is at minus 0.4%. The bank’s next rate-setting decision is in Frankfurt on Sept. 8.

Figures published Wednesday showed eurozone inflation was unchanged at 0.2% in August, and unemployment held at 10.1% in July.

“The economic recovery is still progressing in Europe. Of course there is uncertainty, coming from world trade, coming from Brexit and to some lesser extent from migration issues. Looking through that, I think economic recovery is still continuing,” Dijsselbloem said. “The agenda is still about encouraging growth, stimulating, building on the expansionary monetary policy and also restructuring our economies.”