A rock and a hard place − Lawrence Zammit

Central banks and finance ministers around the world will have a very tough job in the coming weeks and months. They are faced with rising inflation, high levels of indebtedness by governments, businesses and individuals, and the need to get the economy going strongly after the coronavirus. They do appear to be stuck between a rock and a hard place.

The most logical reaction to rising inflation is to increase interest rates. However, with the high level of indebtedness, increasing interest rates will only make things worse. Moreover, an increase in interest does not really help to get the economy going, rather it slows it down. On the other hand, getting the economy going after the coronavirus may increase the risk of high inflation.

The debts that have been accumulated by governments to respond to the coronavirus in the last two years, by businesses to keep afloat in the times of economic crisis, and by consumers to maintain a decent lifestyle, have to be paid at some point or other.

Meanwhile, we also know there are some key priority issues such as addressing climate change; upgrading workers’ skills; the need to maintain the digital transformation of economies and businesses;...