Johan Van Overtveldt: “Politicians should have the courage to say resources are limited”

In a double interview in the magazine Knack, MEP and former Minister of Finance Johan Van Overtveldt and former Chief Economist of the European Central Bank Peter Praet give their view on the high Inflation The increase in the general price level. The original meaning (literally “to blow up”) is monetary inflation, which means that the amount of money increases. Today, inflation primarily refers to price inflation. This means an implicit monetary depreciation. This causes the purchasing power to drop. inflation . We examine some of Johan Van Overtveldt’s quotes.

The causes of inflation

“Europe tackled coronavirus support structurally, while in the US, a one-off cheque was issued. It was very generous, too generous in fact, but you see that the deficit there is decreasing considerably. In Europe, financial measures continue to weigh on government budgets.”

“Europe has itself contributed to inflation with its energy policy. Europe’s preparation for and estimation of the energy transition has been poor. The transition to renewable energy is taking place far too slowly. The reliability of renewable energy is also proving to be much lower than hoped for. In Germany, the share of wind energy suddenly fell sharply because there was less wind. Many countries have also moved away from nuclear energy too abruptly, while investments in fossil energy sources have fallen sharply. However, we will have to continue using fossil energy sources for at least another ten years. In addition, the energy transition requires a lot of new raw materials, such as copper, nickel, cobalt, etc. The demand for them and the price have exploded.”

The role of the ECB and low interest rates

“The ECB said that inflation was a temporary phenomenon. They have clearly underestimated inflation. The ECB should have raised interest rates by the end of last year. Now they face a dilemma: if they do not raise interest rates sufficiently, there is a risk that they will not be able to control inflation. There is thus a good chance that Europe will enter a period of stagflation or even contraction with inflation. In the event of interest rate increase sensitivity, you run the risk of having another euro crisis, such as in 2009. ”

An index jump

“I was part of a government that implemented an index jump, so I am not opposed to it in principle. But I think implementing such an index jump would not be good psychologically at this time. People are currently living in great uncertainty. At the same time, wage increases must not be allowed to get out of hand. We must respect the wage norm law, which stipulates that our wages may not increase more sharply than those in neighbouring countries.”

“Of course, you could also reduce our employers’ Social security Social security is currently managed at the Federal level in Belgium. The most important pillars of Belgian social security are: sickness and invalidity insurance (NIDHI), pensions, unemployment insurance and child allowances. In addition, occupational illness, occupational accidents and annual holidays are dealt with at this level. Some Flemish parties have been campaigning for years for (large parts of) social security to be transferred to the Regions and Communities. social security contributions. This could also greatly reduce labour costs. If wages rise and your Competitiveness The extent to which companies in one country can compete with similar companies in another country. A law came into force in Belgium in 1996 to monitor competitiveness. This stipulates that Belgian salaries may not evolve faster than the average of those in the three neighbouring countries. The Central Economic Council (CEC) performs an annual measurement to see if the objectives have been obtained. competitiveness is compromised, this will be accompanied by job cuts, which will cause even greater budgetary problems in the years to come. That is why I am also against the minimum wage. Employers should be allowed to pay less than the existing minimum wage for jobs for which it makes economic sense. To avoid this leading to ‘working poor’ - which is good for nothing and nobody - we could use money from unemployment benefits to adjust the underpaid wage of those employees to the minimum wage.”

The responsibility of our own politicians

“It is a general problem. Politics has become far too voluntaristic. Politicians must have the courage to say that resources are limited, that priorities must be set and that they cannot even do anything about some things. Do you hear one politician say that today? No, they are going to solve everything.”