ECB: First interest rate cut too timid
The first (timid) rate cut by the ECB has made many analysts and observers turn up their noses. Even our Foreign Minister Antonio Tajani, addressing President Christine Lagarde, said that more could have been dared. The first move by the Central Bank, requested by many and dutiful, has lit a flame of hope for the recovery of European economies.
However, many are convinced that it’s still not enough to awaken the economic cycle, which has been slowing down for too long, of the Eurozone. On the contrary, the ECB says it is convinced that there will be a progressive rebound and that the productive potential will be reached in 2026. However, many observers and “strong” powers are doubtful and believe that the risk of decline in the Eurozone has not been eliminated at all. Above all, President Christine Lagarde has chilled the expectations of the most optimistic by saying that it is not certain that the cuts will continue because some critical issues still exist. Among these is the service sector which is still not free from inflation and above all the tensions caused by imported costs.
ECB, a Eurozone that continues to be weak
The most attentive observers are thus convinced that the ECB’s reference rate will not fall below about 2.5%, one point less than the current one. Inevitably the stimulus will be quite limited. What seems certain is that this cut seems to be really too timid and incapable of breaking the downward inertia that pervades the Eurozone economy. Against all expectations, families, after the pandemic and after a brief moment of desire to spend, are now very “thrifty”.
Some by choice, others by obligation. In fact, inflation has hit the pockets of low-income people who are perhaps more eager to consume. A further example of this decreased attitude to purchase is the flop that, at the moment, the entire electric car sector is experiencing, in central and southern Europe in particular. In any case, and this is positive, the reduction in the cost of money will impact, even if slightly, on mortgage holders and businesses.
A further concern arises from the fact that a significant portion of savings produced in Europe is invested in non-European companies. In the first half of this year, 167 billion euros went outside the European borders and only 17 billion entered. An imbalance too evident. In conclusion, it is clear that a reversal of the trend in monetary policy (read interest rates) of recent years can have a beneficial effect on the recovery of the economy. But the timidity of the ECB and the excessive bureaucracy in the Brussels rooms seem to be pushing away the prospects of recovery at the moment. And Europe really doesn’t need to remain weak.
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