ECB hikes 0.5%

FRANKFURT, July 21 (Reuters) - The European Central Bank raised interest rates by more than expected on Thursday, confirming that concerns about runaway inflation now trump growth considerations, even as the euro zone economy reels from the impact of Russia’s war in Ukraine.

The ECB raised its benchmark deposit rate by 50 basis points to zero percent, breaking its own guidance for a 25 basis point move as it joined global peers in jacking up borrowing costs. It was the euro zone central bank’s first rate hike for 11 years. …

In the tail winds of the hike, they officially announced the “anti-fragmentation tool” (someone clever renamed it last minute into “Transmission Protection Instrument”), essentially one more bond buying program aimed at making intra-eurozone government credit spreads disappear through the ECB buying up highly indebted countries’ debt at subsidized low rates so they don’t pay more interest than countries with sound budgets.

Clearly this will give the former countries’ politicians a clear incentive to get their house in order, and the latter to keep it that way :

… The ECB also agreed to provide extra help to the 19-country currency bloc’s more indebted nations, approving a new bond purchase scheme called Transmission Protection Instrument, intended to cap the rise in their borrowing costs and limit financial fragmentation. “The scale of TPI purchases depends on the severity of the risks facing policy transmission,” the ECB said in a statement. “The TPI will ensure that the monetary policy stance is transmitted smoothly across all euro area countries.”

As ECB rates rise, borrowing costs increase disproportionately for countries like Italy, Spain or Portugal as investors demand a bigger premium to hold their debt. ……


Clearly this will give the former countries’ politicians a clear incentive to get their house in order, and the latter to keep it that way :


Germany is headed straight at supply side economics. By the time it is done the Germans will have the largest deficits. Both trade and budget deficits in Germany with France not far behind. The wealthy as we all would like to be more of…wealthier that is…will feel great in France and Germany. No one else will matter.

Meanwhile the US as a nation will be the country with the UK in tow getting truly wealthy. Demand side econ will do that for you.

Anyway aside from the non stop German jokes about other people…to the south…EU ethnic nonsense is a live. It will be interesting one day to read Greek newspapers reporting on the German debt loads.

Germany is headed straight at supply side economics.

Do you have backup for that statement?

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my comment

In that link ignore the pandemic. The issue is a shift to look for startups and tech from before the pandemic.

my comment

Read the next link particularly at the bottom. While the worries are among the manufacturing analysts or players the German government is looking to make Germany the largest tech hub in the world even if it means a new dotcom era in Germany. That also takes government and private financing. I have not yet found the specific npr link for the German expectation that thousands of local businesses often mid sized businesses going back even centuries will be ruined in the process of an expected German modernization.



Some Germans are also worried about this. Jeromin Zettelmeyer, a former economic official in the German government who is now at the Peterson Institute for International Economics, says Germany may soon find that it's too reliant on manufacturing.

"There is a very serious worry that we might lose our manufacturing edge over the next 10-20 years and be in the same situation the U.S. is now — except, without having grown a new growth engine like the IT sector in the meantime," Zettelmeyer says.

As Germany and the U.S. face the future they are caught in a "grass is always greener" moment, where each sees in the other the thing it does not have. Even if Germany is really good at manufacturing, maybe it needs to try to emulate the U.S. and start looking beyond manufacturing to find postindustrial jobs to drive its economy.


my comment

For a long time now wealthy Europeans have been eyeballing how the US wealthy have gotten so far ahead of them. Politically the European wealthy have been setting up the dialog to alter their fortunes. The invitation is to supply side economics.

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