In December 2017, the ECB once again decided against adjusting its interest rates.
“By the end of 2018, we can expect to see federal fund rates in the US climb above two per cent again. Meanwhile, the ECB plans to keep its interest rates at zero for an extended period of time while continuing to take large amounts of government bonds onto its books. As a result, though the US and the Eurozone are experiencing comparable rates of growth, in terms of interest rate policy they are growing further and further apart. In light of recent developments, namely the risk of deflation disappearing and the surprisingly far-reaching economic recovery of the Eurozone, now more than ever the ECB is facing an increasingly hard task justifying its policy.
The ECB’s extremely expansionary policy combining zero interest rates and continued bond purchases is an emergency measure for which there is no longer any justification. It appears that the ECB Governing Council is hoping to combat the lack of competitiveness in some parts of the Eurozone by weakening the euro against other currencies. However, this is not a sustainable solution to the limited growth in productivity in Southern Europe. Furthermore, weakening the euro against the US dollar will only make the problem of Germany’s current account surplus more acute. If the ECB cannot bring itself to gradually alter its course in the coming year, its communication strategy is going to have to become increasingly creative to keep the critics at bay.”
For further information please contact
Prof. Dr. Friedrich Heinemann, Phone +49 (0)621/1235-149, E-mail email@example.com