The European Central Bank will put the adjustment of the basic interest rate to the vote this week. The eurozone countries afflicted by the crisis hope for rate reduction to 0.5%. This measure may help the EU to overcome the difficulties provoked by the crisis.
Last summer, before the implementation of the bond purchase program, the ECB cuts the key rate to 0.75%. This step should have helped to align the financial imbalance in Europe, but the situation continued aggravating. The countries experiencing problems became the most vulnerable to it. The weak economic statistics and recent reports make the analytics believe in further rate cuts. Its realization is only the matter of time. This can happen at the meeting on May 2 or at the beginning of summer.
Germany that is now pursuing the government spending reduction policy and the budget austerity measures is not happy with this state of affairs. At the board meeting of the German savings banks in Dresden Angela Merkel said that it would be better for the European Central Bank to increase the rate for Germany a bit. As for the other countries, the ECB “needs to do it more to make sure that liquidity is available to enterprises.” This concession may lead to price bubbles. The massive bonds purchases and the reduced rates demotivate the eurozone to reform the system.
Although the rate reduction is inevitable, this measure will not be enough.
ECB Executive Board Member Joerg Asmussen announced that the lower rates will have a limited effect on the peripheral countries. “But this reducing is necessary,” said Asmussen.
According to the Sueddeutsche Zeitung daily newspaper, the troubled countries are not affected by the ECB monetary policy. The loans for the medium-sized businesses of Italy and Spain cost twice the price of the ones for Germany.
“The fact that the European leaders admitted the existence of such problems and asserted their intention to solve them is main achievement for this moment,” told Chief Currency Strategist of the Saxo broker company John Hardy.