Economic Commissioner Paolo Gentiloni on Monday gave the controversial view that Europe is not in danger of a property or debt crisis due to the European Central Bank's interest rate hike.
The ECB has raised rates by a combined 375 basis points since July to curb inflation that hit double digits last fall and which the central bank for the eurozone says will take until 2025 to return to its 2% target.
This makes borrowing higher which is mostly already entangled in debt incurred to support the economy during the pandemic and through the cost of living crisis largely caused by Russia's invasion of Ukraine.
A rise in interest rates also increases the cost of mortgage servicing which is linked to the rate of inflation. Speaking to reporters ahead of a meeting of European zone finance ministers who will discuss the European Commission's latest economic forecast, Gentiloni said some countries may face difficulties, but not the 27 EU countries as a whole.
"The housing sector has different problems in different countries, it depends on how much you have a mortgage system that is related or not related to inflation," said Gentiloni.
Some countries are expected to face difficulties, but overall he does not see the European crisis from this point of view and I do not see any real European difficulties in terms of debt management.
"Yes, interest rates increase the cost of debt, but this happens in a limited and perfectly managed way," he said.
The Commission predicted earlier on Monday that growth this year and beyond would be slightly stronger than expected in February even though inflation would remain higher for longer, and public debt would fall.
Michael McGrath, Ireland's finance minister, who experienced a real estate crisis more than a decade ago, also said there were no signs of a crisis in the property market as demand was buoyed by population growth.
