The Turkish lira has seen better days. Annual inflation in 2021 is 36 per cent, a situation the country has not seen in 20 years. Hoe komt het dat dit voorkomt en kan dit ook gebeuren in de eurozone? How come the inflation be so high now? Assistant Professor at Erasmus School of Economics Aart Gerritsen clarifies this phenomenon in an article of nu.nl.Â
How to tackle inflation according to the consensus
According to Gerritsen, and many other economists, the central bank has a major role to play in combating inflation: 'Economists generally agree that a central bank can combat high inflation perfectly well by raising interest rates. That way you make it more attractive to save and more expensive to take out loans. You lower economic demand, so the economy cools down and inflation rates decrease'.
The situation in Turkey
The central bank in Turkey, however, is doing the opposite, an action that many would at least call remarkable. Gerritsen: 'Turkey's central bank is currently operating under political pressure and is not independent from the government in office. It is politically very attractive to keep interest rates low so that the national debt remains manageable and you can finance spending cheaply'.
When asked whether this could also happen in the eurozone, Gerritsen gives a clear answer: no. 'We have clearly anchored this in the economic institutions of the eurozone: a system of central banks that formulate an independent monetary policy that a government can't get its hands on. If Europe were to face a sharp rise in inflation, the European Central Bank would use its brakes in time to prevent Turkish conditions. Whether the European governments like it or not,' says Gerritsen.
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You can read the full article from nu.nl, 9 January 2022, here.