‘When it comes to savers and investors, the intention is exactly to encourage people to spend money’

Sandra Phlippen, Assistant Professor at Erasmus School of Economics

The European Central Bank is about to launch new measures to stimulate economic growth. ECB President Mario Draghi “talks” interest rates to the lowest level ever, says the headline of het Financieele Dagblad. Sandra Phlippen, Assistant Professor at Erasmus School of Economics and Head for the Netherlands at ABN AMRO’s Group Economics, discusses in NPO Radio 1's "Dit is de dag" whether these measures are necessary and what their consequences are, together with Arjo Klamer (Erasmus School of History, Culture and Communication).

According to Phlippen, a slowdown in World economic growth and trade, which is among others under pressure due to the escalating trade conflict between the USA and China, causes problems for the European economy. ‘The European continent is highly dependent on exports, which means that dangers of the rest of the world are hitting Europe hard. The exports, driven by the slowdown in the manufacturing industry, are causing a decline in European growth.’

The question, Klamer says, is whether a reduction in interest rates will have the desired effect, namely boosting the economy. According to Phlippen, it is not possible to know how strong the effect of such a measure will be. ‘The best studies that are carried out seem to indicate that a reduction does have an effect, and that situation is not as bad now as they would have been had it not been done. It is, however, very difficult to measure this. So, it stimulates the economy a little,' says Phlippen. ‘In addition, the ECB has more instruments than just interest rates, and it has already been said by the ECB that it will use all possible instruments to ensure price stability in the euro area.’

‘For pensions, it is extremely unfortunate that interest rates are being lowered, especially since the pension agreement has just been concluded. When it comes to savers and investors, the intention is exactly to encourage people to spend money.’ Phlippen is, however, of the opinion that it is important that people are not deceived into believing that saving becomes unimportant. ‘Saving still has the important function of having a buffer for when things are going badly. And that is never a bad idea.’

Assistant professor
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Listen to the entire podcast on NPO Radio 1, 19 June 2019.