ECB raises interest rates

Cat Contiguglia, Prague Post, 13.04.2011

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The European Central Bank (ECB) confirmed its confidence in the strength of the eurozone's economic recovery by increasing the interest rate April 7 to 1.25 percent - a growth of 0.25 percent and the first rise since July 2008. In doing so, the bank has also raised concerns about what sort of effect the rate hike will have on peripheral countries, once again underscoring the dramatic disparities between the 17 eurozone economies. [...]

"What is at the center of the problem is countries on the periphery - especially Greece, Portugal, Ireland, Spain and Italy - which have lost competitiveness compared with central countries," said Janis Emmanouilidis, a senior policy analyst at the European Policy Centre in Brussels. "This loss makes it difficult for these countries to come back to growth. They will not be able to close debt or catch up with the core countries. This lack of growth increases divergence." [...]

The rate hike comes at a time when eurozone economies are in vastly different stages of economic health.

"If you hear the finance minister of Greece or Portugal saying that the interest-rate hike will make things more difficult for them, yes it will be more difficult, and we will see if they can compensate for the interest rate. On the other hand, it was an increase of 0.25 basis points; that is probably not enough for the core countries like Germany," Emmanouilidis said. "The fundamental problem is the increasing divergence between eurozone countries, and the management of monetary policy is becoming more and more difficult for the ECB." [...]

For the entire article see here.

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