ECB: Key interest rates hiked too late

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1. ECB: Key interest rates hiked too late

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Driven by very high inflation and strong public pressure, the central bank has had to abandon its zero interest rate policy and is raising the key interest rate by 0.5 points for the first time in two decades.

“In line with the Governing Council’s strong commitment to its price stability mandate, the Governing Council today took further significant steps to ensure that inflation remains at its 2% target over the medium term,” the European Central Bank (ECB) said after Thursday. came back.” Interpretation of interest rate meeting

Given the official and pre-inflation rate of 8.6 per cent in the euro area, these statements can indeed – once again – be taken by the ECB as genuine satire. The Governing Council of the ECB, after observing the colorful movement of ever-increasing inflation, which is already 20 percent or more in some countries, has now concluded that “in order to normalize its prime interest rate, its A larger first step than indicated in the previous meeting is appropriate”.

Lagarde: Protection of Indebted States

Among other things, the central bank explains, “the decision was taken to raise the key interest rate by ’50 basis points’ from 0 to 0.5 per cent.” The negative interest charged by banks for deposits parked in the ECB has also been increased by 0.5 points and is now set at 0 per cent. They were responsible for the fact that savers were also punished and even more evicted for deposits in banks.

All efforts by the ECB, led by Christine Lagarde of France, to keep the key interest rate in the euro area as low as possible in order to continue to reduce rising government debt through inflation, have failed. Because, as to say, taking into account more than a year’s worth of development, apparently Lagarde was the ECB’s undeclared but real target.

Of course, Lagarde primarily had in mind his highly indebted homeland, where one could see the energy field devastation at various levels. There, the country, along with the nuclear power company EDF, has taken on billions of debts and enormous liabilities to modernize ancient reactors, new buildings, dismantling and eventual storage in the coming decades through nationalization to be able to continue angel production. The story of supposedly cheap nuclear power.

confiscation of savers

Partial release of indebted states has already been achieved partly through rapid confiscation of savers. At the same time, the lower classes are engulfed in poverty, as their inflation is very high. Poor people especially have to spend a large part of the available money on energy and food.

Energy increased 42 percent year-on-year and unprocessed food increased by more than 11 percent. However, the fact that the ECB’s undeclared goal was partially achieved can also be read from the European Statistical Authority. Just yesterday, Eurostat reported on Thursday: “The reduction of public debt in the euro area to 95.6% of GDP.”

Of course, this does not mean that the debt has actually come down. The debt has increased even more markedly due to the Corona crisis in general and the measures to deal with it. In real terms, debt levels in the euro area rose by half a trillion euros last year alone to nearly 12 trillion euros, as can also be read in Eurostat.

Due to high inflation and past growth, only the ratio of national debt and states’ annual economic output (GDP) has decreased. Government debt ratio was earlier 100 per cent and has come down to 95.6 per cent due to high inflation. The process is called inflation away.

What is so surprising?

However, taking into account the fact that the official inflation rate, which had already been raised, has long since officially risen to 8.6 per cent, which is upwards rather than the target of two per cent, the Largard ECB was forced to step down. Take off the brake pedal to face the increasingly critical criticism. However, many observers now think that interest rates are “astonishingly clear” that way. Daily News and other major media such as Time to report.

What is really surprising is that interest rates were not raised several months ago, as central banks such as the Bank of England (BoE), the US Federal Reserve or the Norwegian Central Bank did for a long time.

This is surprising given the fact that the increase is only 0.5 per cent. In fact, the ECB either slept through a disastrous development or – which is highly likely – was a deliberate process, as described above.

It should be mentioned that the FED, which has also slept for a very long time, has tightened the reins quite a bit. Bond purchases were halted altogether and the Fed last took a big sip from the bottle in May. In a move, it raised the prime interest rate by 0.75 percentage points to an interest rate range of 1.5 to 1.75 per cent. It cannot be denied that there will be an even bigger hike in interest rates next Thursday to do something effectively against inflation.

Indeed, the Lagarde ECB merely planned a homeopathic departure from the zero interest rate policy, which should remain even less effective than the interest rate step taken now. In July, after an interest rate meeting of the ECB’s Governing Council, it was indicated that the key interest rate was to be raised again for the first time in more than 10 years, but by only 0.25 percentage points.

What next for bond purchases?

Monetary policy – in fact – should also be tightened overall. However, the purchase program for government bonds was only to be discontinued.

In fact, maturing bonds should be reinvested in new purchases until at least 2024, i.e. new bonds must be purchased and the total balance sheet should not be reduced.

With its bond purchases, the ECB has been running the printing press at full speed for almost 14 years now. This caused an influx of money, which sooner or later has to be expressed in high inflation. It only takes an opportunity that acts as a catalyst. In this case, it was the broken supply chain that further reduced supply to start or accelerate the process.

And unlike the FED, for example, the so-called normalization of interest rates, which was even announced, was never introduced in the ECB in all the years following the financial crisis. This shows that the ECB has been in a crisis situation for 14 years, as it has abandoned its main task of ensuring monetary stability and is instead pursuing primarily economic policy.

That the Ukraine war is responsible for a lot of inflation is a fairy tale. That’s what the ECB and many so called quality media keep saying to divert attention from outright misguided monetary policy. Because the facts are different.

At the beginning of last November, more than three months before the outbreak of the war, which was not even predictable, the official inflation rate, which was raised even higher by the German statistical authority Destatis, stood at 5.2 percent. Eurostat also put it at six percent. Of course, war is also driving inflation, but to a lesser extent, otherwise it has long officially exceeded 8.6 percent.

However, the ECB already backtracked on the issue of bond purchases at an emergency meeting when interest rates on government bonds for debt-ridden countries such as Italy, France, Greece and Spain were immediately raised again.

Because, as noted above, debt volume has increased in real terms, which is why the euro debt crisis will move even faster on the agenda if yields on government bonds rise. Since lax monetary policy was never abandoned, ECB junkies could not shy away from the dreaded substance, despite a hike in interest rates.

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