ECB interest rate hike: late but warranted?
After the US Federal Reserve and the Bank of England, the European Central Bank is also hiking interest rates. It announced a raise of 0.25 percentage points in the key interest rate from July - the first increase in more than ten years. In view of record inflation levels, which are currently around eight percent across the Eurozone, the move was expected and even welcomed. For Europe's commentators, however, many questions remain unanswered.
Better late than never
For Zeit Online the question is whether the turnaround will come soon enough:
“History teaches us that the longer a central bank waits to take action against reinforcing inflation - for example when wages also begin to rise - and the longer it lets things run their course, the more drastically it must act to bring prices back under control. And the more drastic the consequences are for the economy and the population. Seen in this light, Christine Lagarde is acting late. Of course one could have guessed earlier on that the inflation would last longer. This turnaround on the interest rate comes late, but at least it has come now.”
Although this step was needed it will also have major repercussions, writes economist Carlo Cottarelli in La Stampa:
“The markets' reaction to the announcement was not good. ... Why? For some commentators the decision reflects the growing influence of the 'hawks' - representatives of the northern European countries - in the Governing Council. In reality it seems to me that the ECB's announcement is the least that can be expected from a central bank faced with an inflation rate of over eight percent. ... Another (more worrying) interpretation is that the announcement of a gradual tightening of monetary policy will not be considered sufficient to curb inflation.”
Wait and see the best strategy
Caution is still needed for all economic policy decisions, says De Volkskrant:
“The global economy has been totally derailed by the pandemic and the ensuing war. This means that any economic forecast must be approached with the utmost caution. That will make it difficult for politicians - as well as trade unions and employers - to judge what policy is wise macro-economically. Do you raise wages that extra bit or not in order to prevent a wage-price spiral? Do you skimp on government spending or spend extra to absorb high inflation? Waiting until the world has stabilised seems to be the best strategy.”
Increased spending a bad idea
With the parliamentary elections on 12 and 19 June looming, no one is thinking about the consequences that the interest rate hike could have for France, criticises Les Echos:
“With national debt at more than 2.8 trillion euros and an XXL deficit, our country is particularly vulnerable to the effects of an interest rate increase. But unfortunately this real threat is not echoed in public debate. On the contrary, the campaign for the parliamentary elections has spawned promises of additional spending. ... Understandably, the presidential camp wants to implement targeted and temporary measures to cushion the inflationary shock. But the 250 to 300 billion in additional spending envisaged in the very expensive programme of the left-wing alliance Nupes is simply not viable.”