Our View: Banks shouldering rate hike the crassest form of populism

For the majority of the political parties, public debate on the economic issues is little more than an opportunity to engage in populism, to pose as the defenders of the man on the street who is invariably portrayed as the innocent victim of ruthless forces. These so-called victims, according to party wisdom, have to be protected at all times, even when they may be in the wrong.

This attitude is the reason it took so long to pass the foreclosures law, the reason it was suspended several times and the reason a law exempting primary residences from repossessions was passed by the parties. After all, the banks are viewed as forces of evil that are displaying their greed when they try to recover the loans their customers refuse to repay.

Now, the big threat to the ‘victims’ of the banking system are the rising interest rates, which according to most reports the ECB plans to increase by about half a percentage point at its next meeting. Latest figures show average inflation in the eurozone remains above 8 per cent which is why another increase in interest rates seems inevitable.

In response to this news, the familiar populism kicked in. On Monday Edek issued a statement proposing that the banks “absorb part of the increase of interest on loans” because the increase “threatens the economic resilience and solvency of thousands of borrowers of the low middle class.” It also warned, without any documentation, that “it will drastically increase non-performing exposures, causing creaking in the economy.”

By the banks absorbing part of the interest increase, the “fine balances of private debt would be maintained and NPEs controlled,” claimed Edek. The danger is that this irrational proposal could be embraced by the other parties that peddle economic populism at every opportunity. It would be no surprise if Diko also decided that the banks must take a hit in order to protect borrowers.

That such a decision, apart from causing problems for the banks, would undermine the aim of increasing interest rates – reducing spending and thus slowing down inflation – is irrelevant to the populists of Edek. The danger is, with Edek and other populist parties like Diko and Dipa being part of the government, such risky measure will always be on the cards.

We hope the finance minister, Makis Keravnos and President Christodoulides, will shut their ears to such suggestions from their party backers, because these are difficult times for the economy which cannot be left at the mercy of the clueless populists.