Yesterday at 2 p.m. another regular press conference of the European Central Bank in a row was finished, where its President Mr Mario Draghi presented the policy of the institution he manages.
Yesterday's conference was unique in many ways. Lowering of the rate on the main refinancing operations to 0%, lowering of the rate on the deposit facility which banks may hold at the ECB from -0.30% to -0.40%, as well as the expansion of the limit for purchasing the euro area government bonds from EUR 60 billion to EUR 80 billion from April include the major parts of the package aiming at recovering the euro area as well as the whole EU from the consequences of the last great financial crisis, which has led several EU countries to the edge of bankruptcy or to the bankruptcy.
The situation is alarming for shareholders (yesterday, the indices were in red to a high extent), banks, and depositors.
Such situation on the financial markets is only suitable to those who further want to borrow. Irrespectively of whether those are private individuals, who want to continue spending, or corporations wanting to invest, or, perhaps, states, which print their debt securities, Europe-wide borrowing has never been so favourable.
What does it mean for Serbia?
If we smartly use this situation, we may have multiple benefits from it:
1) All of the companies having sustainable operation model are now able to additionally borrow for the purpose of increasing their capacities, at the conditions which have never been so favourable. It may, if channelled through the government strategy and support, and if critical mass is gained, lead to a new investment cycle in Serbia.
2) The Republic of Serbia would have to refinance its high public FX debt, which today amounts to 59.5% of the gross national income, or EUR 19.3 billion in real money. What does it actually mean? In simplified terms, it means that we should borrow new 19.3 billion, and with such new money obtained at the historically low interest rates, repay the old, much more expensive loans. A rough calculation indicates that in this way we could save even up to EUR 800 million per annum, which is far more than EUR 200 million which would be saved from the total lowering of salaries and pensions in the last 18 months.
3) Serbian citizens also have an opportunity to, through exceptionally favourable borrowing, obtain additional funds, kick up domestic consumption which drastically fell in the previous year, thus, increasing the sales of goods and services.
These three items, if well-coordinated by the National Bank and the Ministry of Finance, could result in a meaningful growth of the Serbian economy as well as in the number of the employed.
Slavko Carić, Erste Bank EXECOM President