Impact of rate hikes on the green transition
Isabel Schnabel, Member of the Executive Board of the ECB, made a speech at the International Symposium on Central Bank Independence in Stockholm regarding the impact of higher interest rates in the decarbonization of our economies. She considers that price stability and contained inflation (2% medium-term ECB´s target) is a precondition for the sustainable transformation of our economy.
Main takeaways:
- It would be misleading to use higher interest rates as a scapegoat for a further delay in the green transition: Higher interest rates will make the financing of renewable energies and green technologies more expensive, but they are needed to contain inflation and to provide price stability which is a precondition for the sustainable transformation of our economy for two main reasons:
- Restoring price stability in a timely manner provides the conditions under which the green transition can thrive sustainably. High inflation is a tax on investment raising the cost of capital taken for investment decisions.
- The largest barrier to a rapid decarbonisation remains the lack of progress by governments in implementing prior climate commitments: many governments failed to use the past years of low interest rates to accelerate investments to greening the economy. Governments must end the reliance on fossil fuels as quickly as possible.
- Governments must remain in the lead in accelerating the green transition. By promoting green technologies and renewable energies, they will enhance the productive capacity of the economy and thereby help restore price stability over the medium term
- A green Capital Markets Union is needed to foster the green transition: EU equity markets remain fragmented and often illiquid. Reliance on bank lending at a time of rising constraints on banks’ balance sheets considerably reduces the set of options for firms to push ahead with their green agenda
- Current interest rates are not affecting green investments flows: as measures of real long-term interest rates, for example, which matter most for green investments, remain low in historical comparison and there is also no evidence of funding shortages for green investment projects, even ESG equity funds have even seen sustained inflows.
Filter results
According to the OECD. SMEs and start-ups that grow rapidly contribute significantly to job creation, economic growth and competitiveness. Indeed, SMEs that grow by one-third over a three-year period, contribute about as much to job creation as large firms.
According to @McKinsey, banks must prepare for a new growth curve. Strategic precision —the ability to combine technology, capital discipline, and deep customer insight— will distinguish the leaders from the laggards.
According to Kristalina Georgeva IMF Managing Director, lifting growth requires three things: one, regulatory housecleaning to unleash private enterprise; two, deeper regional integration; and three, preparedness to harness AI.
According to The European House – Ambrosetti, the European Union has an opportunity to boost competitiveness and growth by simplifying regulatory and supervisory frameworks, particularly in the areas of sustainability and the financial sector.
According to Ramón Casilda Béjar, Spain, in today’s complex geopolitical landscape, has the opportunity to strengthen its role as a bridge and connecting country between Ibero-America and the European Union, revitalizing investment flows in both directions.
According to @ECB, in moments of acute stress, the public often turns to physical currency as a reliable store of value and a resilient means of payment, underscoring the crucial role it plays above and beyond everyday transactional convenience
According to Juan S. Mora-Sanguinetti, in Spain a 10% increase in regulatory volume leads to a 0.5% drop in employment in companies with fewer than 10 employees.
According to Hélène Rey “In a world where stablecoins, particularly those pegged to the dollar, become an important global payment tool, we must brace ourselves for substantial consequences”.
@judith_arnal proposes reforms for the EU to advance regulatory simplification, starting with consensus on its meaning, with competitiveness as a pillar, plus coordination mechanisms and a governance rethink.
According to @iee_org, Spain has one of the most demanding tax environments for businesses within the European and international context, which may have significant implications for competitiveness, foreign investment attraction, and business expansion.
According to Christine Lagarde for the euro to gain in status, Europe must take decisive steps by completing the single market, reducing regulatory burdens and building a robust capital markets union.
According to the Bank of Spain, in a context of strong growth in transactions and prices, the conditions under which new mortgage loans are granted currently show no signs of easing in lending standards.