skip to Main Content
Get your free newsletter: Actionable insight each morning for self-directed investors. 
Home » Features » Inflation in the Eurozone and why it’s time to worry about debt markets

Inflation rates are rising around the world, including in the Federal Republic of Germany, where the rate next month will probably be a whopping five percent. In view of this, many German citizens are worried that prices could continue to rise at this pace.

Josip Heit from GSB Gold Standard Pay in Sweden, thinks inflation across Europe is going to have far-reaching consequences.

“Consumers are simply passively affected by inflation, prices rise and have to be paid by the “end consumers,” he says. “For those who live on wages or social benefits are “price takers”. So doing without is the order of the day, either by turning down the heating or by saving on other living expenses. Inflation means for dependent employees or the unemployed: they become a bit poorer, which hits those who have little money anyway especially hard.”

Companies in the manufacturing sector are currently suffering massively from rising prices for raw materials and intermediate products, i.e. from rising costs in the purchase of production and operating resources. This is reflected in the so-called producer price inflation, i.e. in the prices settled between companies. It was 14 per cent in September.

Higher costs hurt customers

In this context, higher costs hurt customers, threatening what economists call “demand destruction”. In addition, companies have to consider whether the competitive situation allows price increases at all. If companies do not raise their prices, they lose profit.

“For years, governments around the world have been absorbing the crises, which occur at ever shorter intervals, with new national debts,” Heit tells us. “As the EU Commission recently announced, the national debt of the Eurozone increased from 84 to almost 100 per cent of economic output in 2020 alone – and it continues to rise, with new debt recently amounting to seven per cent of economic output.”

Subscribe for more stories like this, 8am weekdays - for free!

This flood of credit can be financed because of the low interest rates provided by the central banks, whereby the debts of states such as Greece, Italy, Portugal, Romania and Bulgaria are being absorbed with even more debt; in this context, the burden must ultimately be borne primarily by the German taxpayer.

However, if inflation now remains permanently high, the central banks could find themselves forced to raise interest rates. “The increased inflation rates have rekindled the discussion about a faster exit of central banks from the extremely expansive monetary policy,” Heit says.

In the UK, for example, key interest rates will probably be raised as early as the beginning of November 2021.

Interest rate hikes could hurt Eurozone government budgets

Heit thinks that sharp increases in interest rates “could put a strain on the already severely strained budgets of many states and make it virtually impossible to reduce debt to a sustainable level” – which, in reverse, would mean Germany and its citizens paying the debt for crisis countries.

He recalls the great inflation of 1923 and states: “Foreign exchange became the reserve currency, homeowners became beggars, city dwellers fled to the countryside, farmers were plundered, now almost a century after the devastating inflation, fear is running rampant, because the trauma of the inflationary period did not only stem from the loss of wealth.”

The disappearance of money entailed a humiliating loss of freedom. The general bitterness of German citizens was deep-rooted because not only the state but also the social order was shaken – “here and precisely here the economic leaders and politicians are challenged, because mankind today is much better informed and would hardly allow such a trauma, which is why a new inflation could at the same time mean the end of money as mankind knows it…!” Heit says.

Against this background, one must ultimately never forget what the US economist Milton Friedman already said: “Inflation is taxation without legislation”.


This article is not investment advice. Investors should do their own research or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

Stocks in Focus

Here are some of the smaller companies we follow most closely. They represent significant growth stories in our view. Our in-depth reports detail why we like them.


Subscribe for more stories like this, 8am weekdays - for free!

Get your free daily newsletter: 

Thanks to our Partners

Our partners are established, regulated businesses and we are grateful for their support.

FP Markets
Back To Top