Interview: Clemens Fuest: “It is very likely that we have a phase of financial repression ahead of us”

Mr. Fuest, the bond markets are in turmoil and yields are rising sharply around the world. Is this the beginning of a new era, a new world of interest rates?

Yes. In my opinion, the phase of extremely low interest rates that began with the financial crisis is over. High public and private demand for credit, a shortage of energy and other goods, but also the AI ​​boom are currently driving inflation and interest rates in equal measure. However, the increase in real interest rates is significantly lower than the increase in nominal interest rates because inflation is increasing.

What does the rise in yields mean for debt developments in the large industrialized countries? Are the debts in the USA, France, Great Britain and Italy still sustainable? And for how much longer?

The debt is sustainable as long as investors do not lose trust. However, this trust is currently eroding. The continuation of the current debt policy cannot be sustained in the long term.

How do you assess the situation in Europe? Is there a risk of a return of the euro crisis?

Yes, but it will be a different euro crisis than last time. This time the focus is on France. If interest rates on French government bonds continue to rise, the ECB will intervene. Since inflation is currently high, unlike in the last euro crisis, the ECB has less leeway.