In just over a week’s time, more than 22 billion in savings disappeared from the savings books. Nevertheless, the government bond is not the end of the Belgian savings frenzy, says economist Paul De Grauwe (KU Leuven). “The banks will only move if the minister issues even more government bonds.”
“The government bond is a great and unexpected success,” says Paul De Grauwe, one of the eminences grises of Belgian economists, resolutely. “The saver saw that he hardly got anything from the banks, and saw an opportunity to do something about it. And the saver has done so en masse.”
The question is whether this really hurts the banks.
De Grauwe: “Well, it hurts them a bit, but they make so much profit that the pain is relative. The banks have never made as much profit as in recent months, so they can take a beating.”
The intention was to chase the banks, so that they would raise their savings rates. The big banks have not done that.
“You are going too fast. You can’t expect everything to change the day after the government bond is issued. I think the banks will still move.”
Don’t the banks think: the money is already gone anyway, and next year that 20 billion will simply flow back to the savings books?
“If the state bond is a one-time operation, that could indeed be the reasoning. That’s why I think this should be repeated. Then the banks will start to feel it, because those savings are resources that they use to create their profits. If the Minister of Finance keeps up with this, the government bond will certainly have a long-term effect.”
A new government bond at 1 year?
“A new government bond, but not for 1 year. The government must be careful not to finance too much short-term debt. A next government bond would be better over a slightly longer period.”
Is there a real chance that the banks will simply recover the lost profit by, for example, increasing the costs for the customer?
“Of course you can. Who knows, the banks are looking for all kinds of strategies to exploit the saver and to offer the shareholder some extras. Structural intervention is necessary, because the lack of competition in the banking sector is appalling. Those (big) banks don’t compete at all. They complain that the government is creating unfair competition with the government bond by lowering the withholding tax, but they themselves are not playing the game fairly.”
How then should action be taken?
“The Competition Authority must do that (agency that monitors fair competition on the market, ed.) to decide. But the legislature can also do something. There are still bills in parliament to oblige the banks to raise interest rates. If they don’t do it of their own accord, maybe it should be that way.”
Where does that 22 billion go now?
“The government has to collect money every year. The state is short of money to do what it has planned; think of spending on social security, infrastructure, you name it. That deficit is covered by issuing bonds – by taking on debt, that is. At the same time, old bonds must also be repaid when their term has expired. That is about a total package of about 50 billion euros: that is how much money the state has to find every year. The issuance of the government bond provides part of the financing.
Does the success of the government bond entail risks for the treasury? That 22 billion will have to be borrowed again next year, perhaps at a higher interest rate? Maybe it would be better to borrow longer term now?
“There is that chance. But interest rates may just as well have fallen by next year, and the gamble will pay off for the state. The reality is that we don’t know, and it’s very hard to predict. It is important to spread the risk well, with short, medium and long term loans. In recent years, the Belgian Treasury has considerably increased the average loan term, because our country could borrow almost for free. Then it was of course very beneficial to be able to count on zero percent interest for ten or fifteen years.
“Today it is different. Interest rates have risen, but it is very uncertain what all this will look like in a year’s time. Everything depends on how inflation continues to evolve. If it falls quickly, the European Central Bank can ease its interest rate policy. But that is really looking at coffee grounds.”
The Belgians are avid savers, but suddenly more than 22 billion euros is gone. Is this the end of the Belgian savings frenzy?
“No, this is just another form of saving. In total, Belgians had 300 billion euros in savings deposits at the bank. Part of this has shifted, but saving as such has not decreased. A large part of that money will end up in savings accounts again next year, at least if the banks raise the interest on savings.”
Raised 22.3 billion euros, largely through the banks
Friday was the last day on which people could subscribe to the Van Peteghem government voucher. As is known, this yields a net return of 2.81 percent over 1 year, which is considerably higher than the average interest on the savings account. As a result, the counter already clocked up on Friday at more than 22.3 billion.
The largest part of this, 13.4 billion, was collected through the banks. The rest was collected directly through the so-called ledger service.
