Central banks, bond markets and fiscal credibility – why market stability had become political
Senior central bankers warn that while emergency interventions can buy time during market liquidity crises, long-term financial stability ultimately depends on governments taking decisive political action, says Helen Thomas Two of the world’s most senior central bankers have issued a warning that politicians would do well to heed: governments may believe they have years to [...]
Senior central bankers have warned that while emergency interventions can provide temporary relief during market liquidity crises, the long-term financial stability of governments ultimately depends on their political actions. Pablo Hernández de Cos, General Manager of the Bank for International Settlements, and Bank of England governor Andrew Bailey have both emphasized that sudden reversals in sovereign bond markets can quickly erode fiscal space, even before long-term fundamental limits are reached.
The root cause of this vulnerability lies in the changing investor base and the increasing demand for higher returns to finance rising public debt. As a result, fiscal sustainability is not merely about projecting debt-to-GDP ratios decades into the future, but also about ensuring the willingness of financial markets to fund governments in the present.
This reality poses a significant challenge for politicians, who must reconcile their spending promises with fiscal credibility while navigating a complex web of political and economic demands.
Brief written by urgent.news from City AM's own syndicated text. Machine-written — may contain errors; check the original before relying on it.
