Don’t Expect Lower Rates Soon: Ex-European Central Bank Chief at MIPIM

Real estate investors at the annual MIPIM global real estate convention in Cannes, France, clamoring for the return of rock-bottom interest rates got some bad news during the keynote on Tuesday as former Italian Prime Minister Mario Draghi said higher rates are going to be the “new normal.”

Draghi said that since more and more central banks have to service higher deficits than ever before, they will be unlikely to curb interest rates soon. Draghi should know. Prior to serving as the prime minister of Italy for a little over a year, he was the president of the European Central Bank from 2011 to 2019, steering it through some post-Global Financial Crisis years and the European debt crisis.

“Most central banks are now in a different world, in a world where deficits are going to be permanently higher,” Draghi said during the keynote. “All of these countries will have to cope with these big needs that in part are new. For Europe, certainly defense is new, the climate thing is relatively new.”

Draghi reiterated that point twice during his keynote, including the second part led by Newmark (NMRK) CEO Barry Gosin, who thanked Draghi for keeping interest rates near zero while leading the European Central Bank.

“There is going to be a continuing tension between governments and central banks … on inflation,” Draghi said. “So central banks will find it difficult to cut, significantly, interest rates, not to mention the levels that you were hinting at before.”

But Gosin pointed out that even if they remain higher, as long as rates stay steady the real estate industry will be able to adjust.

“Stability in interest rates is better than instability, even if they’re higher,” Gosin said. “You could live in an environment where there’s underwriting that’s higher. So the key is for the banks to start selling some of this stuff.”

Draghi’s keynote began with questions seemingly on everybody’s mind at MIPIM: In what direction is America going now that Donald Trump is in the White House, and what is the United States’ relationship with Europe going to be like?

The former Italian prime minister avoided making any broad predictions about what will happen  — citing a saying about people who live by crystal balls having to eat shattered glass — but stressed what is clear is that Trump does seem willing to back up his threats this time around, as is the case with tariffs.

“We should stop asking whether Trump does what he says or he does not — he does what he says, that’s clear. No doubt about that,” Draghi said. “Will the trans-Atlantic alliance be repairable after all of this? Here the answer really hinges very much on what sort of peace will happen in Ukraine.”

Draghi also touched on his recent report submitted to the European Commission on the future of European competitiveness. It argued the continent should focus on increasing both public and private investment in Europe, boosting more innovation and tech companies, and promoting decarbonization so its countries don’t have to rely on oil and gas from elsewhere.

“We have to undergo an existential change,” he said. “If we don’t do that, then our existence as the European Union is at stake.

“There’s is no way this continent can be competitive if energy costs three to four times what it costs in the United States or China,” he added.

But despite the challenges, and sometimes dire predictions, facing the EU, Draghi ended his keynote with a simple message: “Have faith in Europe.”

Nicholas Rizzi can be reached at nrizzi@commercialobserver.com.