European Central Bank Cuts Interest Rates
In an attempt to revive Europe’s slumbering economies, the European Central Bank announced Thursday it had cut interest rates down to 3.25%. That is still significantly higher than the rates in the United States, but it may encourage investors, businesses and private individual to start spending again nonetheless.
However, cutting interest rates does not undo the real problem right now: banks are hesitant to loan anyone money. They are hesitant to loan to each other, and they are hesitant to loan money to normal citizens and companies out of fear that the economic recession may result in them having to write the loan off as a loss.
ECB president Jean-Claude Trichet already anticipated that the half-a-point cut could not suffice to revive Europe’s slumbering economies and implied that more cuts could follow soon. The Central Bank of the United Kingdom cut interest rates by 1.5 points earlier this week, from 4.5 to 3%.
The news came at the moment when the International Monetary Fund said it expected the crisis to deepen in the Eurozone. According to the IMF, the Eurozone’s economy will shrink by 0.5% in 2009, which is worse than previously predicted.
Speaking after the ECB’s cut Trichet said that the turmoil on the financial markets remain ”extraordinarily high and exceptional challenges lie ahead.”
The crisis will deepen, this much is clear. It will become worse, cuts in interest rates may do some good, but high interest rates as such are not the problem. The crisis is much deeper than that, other policies are necessary to prevent a second Great Depression from occurring. Then again, perhaps the best course to follow is to let the economy sort its own problems out, limiting the damage as much as possible without creating an artificial recovery, and spend wisely, so that the economy can rebuild itself once the recession has come to an end.
This website uses IntenseDebate comments, but they are not currently loaded because either your browser doesn't support JavaScript, or they didn't load fast enough.
Comments are closed.
PoliGazette Comments Policy
PoliGazette encourages comments from all viewpoints, especially those that disagree.
Comments submitted must, however, adhere to the following standards. Comments that violate
these standards may be edited or deleted without notice at the sole discretion of the editors.
Commenters who repeatedly or egregiously violate these standards or who attempt to argue
publicly with editors regarding the comments policy may be banned from commenting further.
(1) Comments should address the substantive content of the post. Comments that repeatedly
or blatantly misrepresent the content of the post or of others' comments are not welcome. Comments that
respond to something other than which the contributor or commenter may have said are irrelevant and should
not be posted.
(2) Comments should avoid vulgarity as well as racial, ethnic, religious, or sexual bigotry.
(3) Comments should not personally attack the character, personal integrity, or professional
reputation of any PoliGazette contributor or of other commenters.
(4) Comments should reflect the contributions of the commenters themselves and should not
include extensive cut-and-paste reproductions of others' words except insofar as necessary to supplement
the commenter's own arguments. Link spam, trackback spam, and propaganda spam will be instantly deleted.
(5) Public figures are considered open to all substantive criticism of their policies and statements.
Comments that present objectively false factual information about public figures (i.e. "Obama is a Muslim") or
that attack public figures by attacking their families are not welcome. Comments that merely repeat
slogans for or against a candidate without engaging in substantive comment are not welcome.
Questions or challenges to these policies or their application should be directed to the editors
by email only.
