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Economic activity continues to decline across the bloc because of the coronavirus pandemic causing the European Central Bank (ECB) to increase bond purchases. However, speaking to the Deutschlandfunk news outlet Deutsche bank’s Thomas Mayer said: “At some point, the bill will come. It will come from the fact that if you keep the interest rates low, the debt will keep increasing.
“So at some point inflation will have to rise.
“And if inflation rises, the central bank would then have to raise interest rates.
“But they can no longer do so because the states would then go bankrupt.”
The head economist has warned the consequences of multiple waves of coronavirus will “push debt up even further”.
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He spoke of the effort by the central banks to keep interest rates down “even though inflation rises”.
Chief economist of Deutsche Bank Group and head of Deutsche Bank research Mr Mayer said this would eventually result in “confidence in the money the central banks are issuing falling”.
He added: “Unfortunately, that’s the direction we’re going.”
Speaking about central bank monetary stimulus policies he said, “it won’t be able to go on like this forever”.
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The economist spoke about the rationale of constant money printing and the buying of bonds and how in the short term it would work, but longer-term it is not feasible.
He added: “At that time we thought we could get through without a second wave.
“In the meantime, however, it looks as if the fourth quarter of last year, the first quarter of this year, has become weaker.
“The economic activity has slowed again, which will push this debt up even further.”
The European Central Bank has been trying to hold interest rates as low as possible.
In December of last year, the ECB enlarged its monetary stimulus program by another 500 billion euros.
Inflation is rising in the EU, it increased from 0.2 percent in November 2020 to 0.2 percent in December, according to statistics from Eurostat.
Additional reporting by Monika Pallenberg
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