Over the past few weeks, political unrest in France has led to a sharp rise in the interest rates the French government must pay on new borrowing. Meanwhile, US interest rates have also reached levels not seen for a couple of decades. It’s a big change from only five years ago, when some governments (including Ireland) were able to borrow money at a negative interest yield. Now Ireland has to pay about 3½ per cent annually when borrowing for 10 years, and the German government fares little better. So what’s going on and how much does it matter for us in Ireland?

Although both the European Central Bank (ECB) and the Federal Reserve held back from increasing interest rates at their meetings this week, the general expectation is that their commitment to bring inflation under control will mean some further increases in coming months.

The changing of the guard at both central banks is unlikely to reverse the upward movement. New Fed chair Kevin Warsh defied the hopes of the White House last month when he presided over a rate increase that mirrored the practice of his predecessor in responding to higher inflation with higher interest rates.

The leading candidates to succeed Christine Lagarde, when she steps down early from the presidency of the ECB in three months’ time, do not include any radical advocates of easy money. Even if Dutch contender Klaas Knot is considered more hawkish than his main rival, Spaniard Pablo Hernández de Cos, both are orthodox economists committed to restoring price stability. And high interest rates are a central bank’s main tool for achieving that goal, though unfortunately they are a blunt instrument for dealing with the current bout of........

© The Irish Times