Although debt is higher due to the “shock” of the pandemic, there is no fundamental reason to think of a debt crisis, according to the president of the Central Bank of Portugal, Mario Centeno, in an interview with “NEA”, underscoring that the current European institutional framework is stronger and the policies are coordinated, while member states have also taken steps to reduce risk. He did, however, make clear that the current inflationary energy framework cannot be used as a “scapegoat” for unjustified fiscal policies and stressed that support should be targeted. He pointed out, finally, that he does not predict that Greece will lose access to the markets.

Mr. Centeno did admit there was a slowdown because of the war and consequent energy prices, but that is not the same as a recession, and noted that the labor market is holding up remarkably well, which acts as a buffer against recession.

The Portuguese central banker saw that a scaling up of interest rates from the ECB would help fetter inflation, and it has already started to show.

Despite Eurozone bond spreads being at high levels, and borrowing costs being high, Mr. Centeno expressed confidence that, in due course, markets will converge towards a welfare-enhancing equilibrium.

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