University of Bayreuth professor criticized European central bank's actions

In June 2024, the European Central Bank (ECB) began to cut its deposit rate, and by April of this year its level dropped to 2.25%. According to the regulator, the reason for this was a slowdown in inflation. However, according to Thorsten Polleit, professor of economics at the University of Bayreuth, the real reason is different.

Now, the region is facing difficulties in supporting its economic growth. At the same time, there is a problem with huge government debt in many European countries. Its overall figure for the eurozone is close to 90% of GDP. As the expert states, EU countries need to raise taxes and cut spending to balance budgets. But such measures are politically unpopular. It is easier for the authorities to issue new debt to pay for spending with newly created euros.

As Polleit believes, this is the reason for the bloc's rate cuts. He expects the ECB to keep buying new debt, increase the money supply, and set lower interest rates by controlling bond yields. This will be accompanied by expenses leading to a significant increase in inflation, as well as a decrease in the purchasing power of the euro, lower real value of government debt, and reduced savings of the population, the expert concludes.