Debt crisis chronic, says Turkey's Central Bank Governor

ANKARA - Anatolia News Agency

Turkey’s official inflation target may be revised below five percent, says Başçı.

The global economic crisis can be divided into two major periods, the Lehman crisis and the European debt crisis, Central Bank Governor Erdem Başçı said yesterday.

The first period was an acute crisis, but the latter has shown characteristics of a chronic crisis, Başçı said, speaking at an event held to present a report titled “The European debt crisis and its reflections on Turkey,” published by the Institute of Strategic Thinking. The Lehman crisis had a more global impact, while the European debt crisis has had a more selective effect, he added. “The European debt crisis seems like a crisis [that will have a] longer-term effect.”

The problem in Greece and Italy is mainly that the public debt burden is too great, while in Ireland and Spain the problem is that the consumer debt burden is too heavy, in the end becoming public debt via the banking sector, Başçı said, adding that the debt burden of these four countries violated the Maastricht criteria. The Maastrict criteria stipulate that the ratio of gross government debt to gross domestic product must not exceed 60 percent.

Debt burden hurts growth

The debt ratio is about 60 percent in Spain, more than 80 percent in Ireland, and above 70 percent in the United States, Başçı said.

“The [debt ratio] begins to affect economic growth after a certain threshold is passed. Excessive debt burden hurts growth. As for Turkey, the country is still in the beginning stages of this matter. The ratio of housing loans to the gross domestic product is very low. So if we can continue to keep the trend under control and handle it carefully, then there is no reason to expect any problem stemming from debt levels,” he said.