Credit expansion in Greece and the Eurozone was expected to freeze as the cost of money soared following repeated interest rate hikes by the European Central Bank in order to tame inflation.
The failure of the interest rate increase policy to stop the upward course of inflation was also expected. The ECB and the Fed were confident of the effectiveness of their policy, that successive interest rate hikes would tackle inflation, but so far their estimates have been proven wrong.
After a long-term and coordinated interest rate attack, an explosive mix has been created amid high interest rates and high inflation.
And this is expected to get worse European Central Bank President Christine Lagarde and Federal Reserve chair Jerome Powell will announce further interest rate hikes, while at the same time floods, droughts and the Russian-Ukrainian war bring new commodity price hikes, which will trigger a new wave of food price hikes.
There is also the unstable factor of energy prices, which can complement the negative inflationary scenario.
The strategy of central banks has failed so far because inflation is not a matter of demand, so that it can be contained by raising interest rates.
It is an inflation triggered by special conditions as a result of problems in the supply chain, which were amplified during the pandemic, with the war and the energy crisis.
Such problems are usually faced by governments and not by central banks, which are limited by their role in monetary policy.
And it is time to address it together immediately, before economies go into recession and a vicious cycle of unknown duration begins.
