Can Europe benefit from higher US interest rates?

The US dollar soared to a 14-year high on Thursday at the prospect of rising interest rates. Fed chief Janet Yellen had announced a 0.25 percentage point rise. Europe's exports will benefit from a strong dollar, some commentators point out jubilantly. Others warn that US protectionist countermeasures could spoil the fun.

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taz, die tageszeitung (DE) /

Exports will rise

The Fed's interest rate hike may even help Europe, taz hopes:

“With 4.6 percent unemployment and 1.7 percent inflation, the US has clearly recovered far quicker from the 2008/9 financial crisis than the Eurozone (unemployment 9.8 percent, inflation 0.5 percent). Since much of Europe is still recovering, the ECB is continuing its zero interest rate policy. And by the end of 2017 a total of 2.3 trillion euros will be pumped into the market. That corresponds to roughly seven times the German budget. Astronomical amounts of money for astronomically big problems: yesterday the Brexit, today Italy's banks, tomorrow perhaps far-right governments that want out of the EU. Bloated stock markets and real estate markets and mini returns for small investors are the result. But perhaps the biggest economy in the world can also help us. After the Fed's decision the dollar rose to a 14-year high against the euro. That makes European products cheaper and hence more competitive abroad.”

Kauppalehti (FI) /

The danger of a protectionist backlash

Kauppalehti also believes a stronger dollar exchange rate could be good news for Europe's export industry, but fears the consequences of weaker US exports:

“The countries that do trade with the US benefit when their currency gets weaker against the dollar. … The stronger dollar also accelerates inflation in the Eurozone because it makes imported products more expensive. This is a relief for the Eurozone, which has long been tottering on brink of deflation. … However a stronger dollar also has its downside. It can provoke counter-reactions. If the strength of the dollar slows down exports it could boost the protectionist mood. The Fed is displaying its typical sensitivity to weaker growth prospects and market turbulence. It may even go back on its decision to raise interest rates next year.”

Delo (SI) /

Economic recovery could spread to Europe

If the Eurozone can stabilise its economy it will be able to follow the US's example and also raise its interest rates, Dnevnik hopes:

“ECB chief Mario Draghi is worried about the impact of Europe's still weak growth on election results in key EU states in 2017. Large Italian and German banks are in danger, and unemployment in Southern Europe is causing additional headaches. The US, by contrast, has recovered quickly and its economic upswing and low unemployment rate are allowing it to call the tune. Donald Trump's election has also given the financial markets cause for optimism. ... In the medium term, after election year 2017 everything will depend on the state of the Eurozone. If the EU can profit from the economic upturn on the other side of the Atlantic and put its own affairs in order, the ECB interest rates will also be normalised and finally recover from their historic low.”

Le Monde (FR) /

The Eurozone must not follow US's example

The US is distancing itself from Europe with its new financial and fiscal policy, Le Monde comments:

“Of course Europe also needs normalisation: a return to inflation levels of around two percent and higher interest rates to avoid new financial bubbles and help the banks get back on their feet. But Europe is fragile, very fragile, in particular the over-indebted economies of the South, including France. Trump's election and the Fed's decision finalise the separation of the two continents, one of which is in the midst of a boom while the other is seriously weakened. The United States has opted for higher spending and a restrictive monetary policy. Europe needs exactly the opposite: a flexible monetary policy and a minimum of fiscal discipline.”

Neue Zürcher Zeitung (CH) /

Corrective measure far too mild

The interest rate hike in the US is good news even though it comes too late, Neue Zürcher Zeitung comments:

“The president elect's planned stimuli in the form of tax cuts and increased public spending look set to further accelerate inflation. ... That could put the Federal Reserve in the difficult position of lagging behind inflation or 'falling behind the curve', as monetary policy jargon has it. In that case it will be forced to pull on the monetary reins far sooner - and more forcefully - than its goal of gradual normalisation would dictate. The Fed stresses that it will do all it can to avoid such an abrupt and aggressive monetary tightening because that could plunge the US into a recession. However with its excessively hesitant policy it has made such a scenario all the more likely. Wednesday's homeopathic interest rate adjustment will do little to change that.”

La Vanguardia (ES) /

The Fed is taking precautionary steps

The decision of the Fed chief is a precautionary measure in anticipation of Trump's economic plans, La Vanguardia suspects:

“The Fed wants to counter the inflationary tensions that Trump's expansive economic policy may aggravate: he has announced a plan involving millions in public investment and tax reductions. … This tougher monetary policy will cause confrontations with Trump, who rejects the idea of making money more expensive and is a known opponent of Janet Yellen … Both the Fed's monetary policy and Trump's economic plans are aimed at strengthening the dollar and stand in stark contrast to the monetary and economic policy of Europe, which is still applying austerity measures and still has zero interest rates, weak growth and high rates of unemployment. Despite the financial tensions this could cause between the two blocs, for the EU it is good that the world's biggest economy is consolidating its growth.”