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EU “nightmare of unemployment” debate reaches ECB, which cuts rates to record low 0.5%

Friday, May 3rd 2013 - 02:24 UTC
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Draghi vowed to keep rates low for as long as needed and could take further action again if necessary Draghi vowed to keep rates low for as long as needed and could take further action again if necessary

The European Central Bank cut interest rates to a new record low on Thursday amid a chorus of calls for the Euro zone to focus on growth to end a “nightmare of unemployment” in the bloc. It was the first cut in ten months.

A day after May Day demonstrations across Europe for an end to punishing austerity in favor of policies to spur growth, the ECB shaved a quarter point off its key “refi” refinancing rate to a new record low of 0.50%.

The widely expected move was by no means unanimous on the ECB policy-setting governing council, central bank chief Mario Draghi revealed. But despite the divisions, Draghi vowed to keep rates low for as long as needed and could take further action again if necessary.

“Weak economic sentiment has extended into the spring of this year,” Draghi told the news conference. “Inflation expectations for the Euro area continue to be firmly anchored.... our monetary policy stance will remain accommodative,” he said.

Inflation in the Euro zone during April dropped to 1.2%, the lowest since February 2010 and quite below the 2% ECB target for 2013.

The ECB meeting came as a debate resurfaces over whether German-led austerity policies are the best medicine for the recession-wracked Euro zone, now in the third year of its crippling debt crisis.

New Italian Prime Minister Enrico Letta, who has vowed to spearhead the drive towards more growth-friendly policies, said on Thursday that a plan was needed within weeks to end the “nightmare” of mounting youth unemployment.

Speaking in Brussels after meeting European Commission President Jose Manuel Barroso, Letta said: “Youth unemployment that is the real nightmare of my country and the EU.”

But the head of the IMF, Christine Lagarde, weighed into the debate saying she saw no alternative to austerity championed by German Chancellor Angela Merkel.

“What is the alternative?” asked Lagarde.

Providing hope that the ECB might act again to stimulate the economy, Draghi repeated his comments from last month saying the ECB would “monitor very closely” incoming data and insisting the bank was “ready to act if needed.”

But analysts and ECB watchers warned the rate cut might not have a huge economic impact.

Draghi revealed that the ECB was in “consultations” with other European institutions such as the European Investment Bank (EIB) and the Commission. The ECB thinking on the issue was “very much at an early stage,” he acknowledged.

While financial market tensions have eased in recent months and the region's banks are enjoying easier access to funding, available data suggest banks are still not readily lending to companies.

Another way for the ECB to help alleviate this situation was for it to keep banks flush with as much liquidity as needed, extending its generous “full allotment” mode of financing banks until at least July 2014.

Looking ahead, analysts said they did not expect the ECB to focus on further cuts in interest rates, but on finding a solution to the problem of lending to companies.

Others were concerned the ECB generosity might relieve the pressure on governments with a hefty reform agenda ahead of them.

Commerzbank chief economist Joerg Kraemer suggested that while the ECB's actions were ”well-meaning, it takes the pressure off the governments in the periphery countries to reform and makes a solution to the debt crisis more difficult.

Categories: Economy, International.

Top Comments

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  • DanyBerger

    Oh! the idiots are realising now that austerity measures don't work.
    May be they will implement Cristina economic measures?
    Not too late fella...

    May 03rd, 2013 - 07:39 am 0
  • Conqueror

    It's important to notice the similarities between the eurozone, indeed the EU as a whole, and a failed state such as argieland.

    Inflation in the eurozone is at 1.2%. Whilst argieland has 26%.
    Argieland has a “blue” unofficial exchange rate exceeding NINE pesos to the dollar. The eurozone doesn't have anything like that.
    Argieland has recently imposed a “freeze” on food prices in supermarkets so that the population doesn't starve. The eurozone doesn't have anything like that.
    Argieland produces “official” statistics that are widely discredited (that means they are lies) and takes action against people daring to publish different figures. The eurozone doesn't have anything like that.
    Argieland “pay negotiations” commonly start around increases of 25%. Eurozone pay negotiations generally start around 1-2%.
    Argieland is protectionist and levies taxes on exports. The eurozone, and EU, is also protectionist but doesn't.
    And one final thing. The eurozone is an “association” of 17 countries, all with different economies, capabilities and requirements affecting a population of 332,839,084. By comparison, argieland has a tiny population of 41,281,631.

    See all the similarities?

    May 03rd, 2013 - 01:28 pm 0
  • DanyBerger


    “See all the similarities?”

    Yeahh I see it...

    Eurostat takes data provided by countries members and all lie and cook the books as its is convenient to them or may be not like Greece.

    Any idiot can realise that but you.

    “Argieland produces “official” statistics that are widely discredited”

    Emmm like yours perhaps?

    “Lies, damned lies and Greek statistics”
    Cooking the books can lead to a half-baked result, writes Tim Harford

    “The UK’s Office for National Statistics did not to correct a significant flaw in the way the retail price index was calculated, a decision that seems to have been motivated by a preference to overcompensate pensioners,
    index-linked bond investors and others for inflation.”

    “the formula used to produce the RPI does not meet international standards and recommended that a new index be published” Jil Matheson

    “If the RPI had reduced, JP Morgan economist Allan Monks estimated it would have saved the Treasury between £3 billion to £4 billion in servicing its own debt.”

    So idiot try to sell your crap to someone more idiot than you.
    Ok, that will be so painful because will be so hard to find one.

    Doesn’t matter you try anyway

    May 04th, 2013 - 09:34 am 0
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