ECB: how will the interest rate hike affect Europe?

After more than six years of a zero-percent interest rate policy, ECB chief Christine Lagarde has now indicated that a hike in the base interest rate in the Eurozone could come as early as July. In its move away from an ultra-lax monetary policy, the ECB also plans to stop financing government debt. Commentators see hard times ahead.

Open/close all quotes
Corriere del Ticino (CH) /

Stormy times ahead

Corriere del Ticino points to great uncertainty among investors:

“The current jitteriness of the markets and the political and monetary authorities is due to the realisation that the era of an economy 'doped up' on zero or even negative interest rates and the constant 'printing' of new money is coming to an end. These measures, introduced after the 2008 financial crisis and reinforced during the pandemic, led to artificial growth and changed the behaviour of the economic players. ... [Investors] don't know where to flee as the US Federal Reserve increases interest rates, inflation rises and fears of recession and the impact of the ongoing war in Ukraine grow.”

De Volkskrant (NL) /

More debt no longer a solution

The southern European countries in particular are now facing a new debt crisis, warns De Volkskrant:

“Because of inflation, there seems to be no easy and painless way out this time. Since the financial crisis of 2008 every crisis has been fought by creating more debt using a kind of antibiotic cure for the economy. But at a certain moment, this medicine no longer works and the economy now has to cure itself. Instead of trying to prevent all economic suffering, politicians must above all think about how suffering can be distributed in an honest way.”

Trends-Tendances (BE) /

Cautious approach justified

Trends-Tendances argues that banks have good reason to be hesitant about raising interest rates:

“Today the rise in prices is primarily due to the Covid pandemic, which brought production in China and the transport of a whole range of goods to a halt. The war in Ukraine has only accelerated this trend. Raising interest rates will do nothing to reverse these shortages. That explains why central banks are reluctant to do so today, especially in the Eurozone. Many workers are also tenants, and are hit hard by inflation because their rents are index-linked. Unfortunately, these same workers are also often in debt, so higher interest rates would represent a double burden for them.”

La Croix (FR) /

Tight finances after the elections

An interest rate hike will hit France hard, La Croix fears, adding that the people should be aware of this before the general elections:

“For almost 50 years our country has been living beyond its means with a budget deficit. The ECB's accommodating policy concealed this reality, but only for a time. The majority that emerges from the polls on June 19 will face a new situation. In the meantime, voters should look at the parties' programmes - both those which involve spending without counting and those that promise further tax cuts - with more objectivity. In both cases there is the danger that these promises will fail because of debt financing.”