In the Middle Ages, lenders were resourceful in order to secure the repayment of their loans. King Edward III of England, for example, was forced by his creditors to pay his crown as “collateral” on loans he received. And the King of Germany, Charles IV, was forced to pay both the crown and the official royal clothes of his enthronement as a “pledge”. Today’s savers, investors and lenders remain less resourceful. They depend mainly on the so-called “stress tests” that banks are subjected to. Thus, to the extent that banks successfully pass stress tests, the risk of a collapse of the financial system becomes (theoretically) negligible.

Therefore, central banks relied on stress tests to decide on the recent hike in interest rates. After the ECB raised interest rates by 0.5 percentage points, Christine Lagarde, ECB President, spoke of further inflationary pressures that appear to be setting the stage for further increases. However, the governor of the Bank of Greece, Yannis Sturnaras, believes that raising interest rates is a thing of the past.

In my opinion, the CE commander is absolutely right! I mention two reasons that lead to this particular conclusion. First reason? Both Christine Lagarde and Andrew Bailey (BoE) and Jerome Powell (Fed) repeat that banks are safe. Stress tests confirm this. For example, recent stress tests in the UK have concluded that UK banks remain “strong” even if (a) the stock market falls 45%, (b) UK GDP shrinks by 5%, and (c) global GDP shrinks by 2%. ,5%. %. Other central banks are also “conducting” equally rigorous stress tests to conclude that banks, including those in Greece, are certainly “reliable”.

I do not agree with the severity of the stress tests, nor with their conclusions. However, let’s not forget that stress tests are “exercises on paper”. Indeed, the nervousness/panic seen in the markets after the collapse of Silicon Valley Bank and before the acquisition of Credit Suisse leads to the conclusion that fear, however irrational, outweighs the stress tests if the banks pass. The second reason for not raising interest rates further has to do with fixing disruptions in global supply chains. This price index is already on a downward trend. This particular index predicts the consumer price index (CPI) very accurately. Thus, a big de-escalation of global inflation and, of course, inflation of the Eurozone, but also of Greece, is “approaching”. So we (should) stop raising interest rates.

* Professor of Finance and Accounting, University of Liverpool.