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‘Impending financial crisis requires coordinated int’l policies’

Citing global financial developments, from central banks’ interest rate moves to collapsed banks, economist David Audretsch said averting the impending financial crisis requires coordinated international policies.

The current crisis is global and not an unexpected one, he told Anadolu, noting that it will not be averted by itself, and could erupt into an economic disaster.

“Whether the small fire, ignited by the failures of SVB and Credit Suisse, remains contained or erupts into a global financial crisis will be largely influenced by the policy response,” he said.

Lenders from SVB in the US to the Swiss Credit Suisse have recently suffered damage as many feared wider turmoil in the banking sector.

Never-ending interest rate hikes were seen as one of the main reasons by some analysts for the current difficulties in the banking sector.

Audretsch said that if the public policy can restore confidence in the financial system and restore regulations by closing the precarious loopholes opened up in previous deregulation, a full-fledged financial and economic disaster can be averted.

On central banks’ interest rate hikes in the post-pandemic era, he said these hikes are a painful but essential policy required to remedy inflation.

Audretsch added: “Inflation has brought down numerous regimes and societies throughout history, it erodes both economic but also social values.

“Inflation no doubt played an important role in the rise of National Socialism in Nazi Germany of the 1930s that resulted in the downfall of that country and a devastating world war.”

The annual inflation rate in the US was 6% in February, and previously hit the record level of 9.1% in June last year, while it was 1.4% in January 2021.

The US Federal Reserve has gradually increased its policy rate from 0.25% to 5% since January 2022.

The economist stressed that what should be criticized is the lavish and irresponsible policies triggering inflation in the first place.

However, he said, “the past is the past,” and public policy should confront today’s challenges to guide society into a prosperous and secure future.

The negative impact of higher rates does not fall equally on everyone in society, he noted, saying: “The old, poor, and small businesses are more vulnerable to the harsh impact of higher interest rates than are the wealthy and large corporations. It is the responsibility of policy to ensure that those most adversely impacted are assisted.”

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